In the high-stakes environment of high growth private equity (PE)-backed businesses, the pressure to deliver results is unrelenting. Whether a business is looking to scale, expand internationally, or prepare for an exit, legal complexities and risks increase significantly as the business evolves. At some point, outsourcing to external legal firms is no longer enough – this is when businesses should consider hiring their first General Counsel (GC).
But when is the right time for a PE-backed business to bring on an in-house legal expert, and what are the benefits?
A common misconception is that legal expertise only becomes crucial at later stages – in IPO preparation, when undertaking substantial M&A, or when facing significant regulatory hurdles. While these are certainly scenarios that require dedicated legal support, forward-thinking PE-backed businesses appreciate the value of hiring a GC much earlier, often during the initial phase of growth after investment, to optimise internal processes. In these fast-moving environments, delaying the appointment of a GC can expose the business to increased risk and missed opportunities.
Key triggers for bringing in a GC might include:
An in-house GC will understand the business’ strategic goals and risk profile and provide nuanced legal, risk and governance advice accordingly. A PE-backed company, with complex growth and exit strategies, can particularly benefit from this specialised insight.
Companies in highly regulated industries are prone to scrutiny and complex legal issues. Those which are B2C face heightened reputational risk. It can really pay to have someone on board who has expertise in managing the legal issues that can arise unique to the sector as well as experience of dealing directly with industry regulators.
A GC can manage relationships between the board and senior management and externally with regulators and advisers and anticipate the legal, risk, regulatory and reputational issues that will typically arise. Having a lawyer on the leadership team acting as the moral compass of the company provides the board, investors, and employees with confidence that someone is managing business risk and ensuring compliance with all relevant regulations.
The costs of external counsel can be eye-watering and add up quickly. While they remain essential for unique subject matter expertise, a GC is integral to building a legal budget and strategy that uniquely aligns with the company’s revenue and business needs. A GC will effectively be your triage, overseeing day to day ongoing legal tasks and reducing the need to outsource routine work that can be done in-house. They will better manage your relationship with external counsel, assembling a trusted panel of advisers and extracting improved value by negotiating rates and billing processes.
If the cost of hiring a GC is an issue, then consider hiring a fractional part-time GC or on an interim basis initially to trial the benefit.
Negotiations, whether for supply contracts or acquisitions, are at the heart of a company’s growth. A GC not only manages the legal side of these negotiations but can also participate in shaping commercial strategy, ensuring the company’s legal and business objectives are aligned. This strengthens the company’s position, both in negotiations and in managing potential issues.
Different sponsors may have conflicting objectives, particularly around financial goals, exit strategies, or risk tolerance. A GC plays a critical role in navigating these divergent interests, helping to mediate disputes and ensure that all stakeholders remain aligned. Their legal expertise can also help structure agreements that protect the company from being pulled in multiple directions by its investors.
For many PE-backed companies, the end goal is usually either a sale, further investment or IPO. Preparing a company for IPO requires substantial upfront legal work and the IPO itself requires navigating a complex legal process prior to and after the listing. Having a GC in-house well ahead of these milestones ensures that the business is fully prepared when these opportunities arise.
The GC can steer the company through complex due diligence processes, liaise with regulatory bodies, and ensure that the company’s legal structure is IPO-ready, all of which are crucial to securing a successful exit. A company in high growth mode will also face challenges such as staff expansion and structural changes, which a GC can support with.
As the business continues to grow, the GC can begin to build out the in-house legal and compliance team, ensuring that the company has the legal infrastructure and specialists it needs to support future growth. This internal team can react more quickly and efficiently than external firms, offering tailored support across all business areas.
Hiring a General Counsel is not simply about reducing legal fees or managing risk. It’s about having a strategic advisor embedded within the business, acting as key partner to the CEO and other board members, working together to drive business growth while providing governance and minimising risk.
For PE-backed companies aiming for rapid growth and ultimate exit, bringing in a GC at the right time can make the difference between a smooth, successful journey and one exposed to a higher level of risk. In today’s fast-paced, competitive market, hiring a GC sooner rather than later can position a PE-backed business to achieve its ambitious goals more securely and efficiently.
At SSQ, we regularly partner with PE clients and the management teams of their portfolio companies to provide support in recruiting their first GC. Please do reach out to Laura Field, head of our In-House team, to discuss the strategy and value of hiring a lawyer for your business and ensure you’re set up for success.