Risk Update

Business Conflicts — Firm Advising “Repeat Players” Faces Contention

Kirkland’s Role Advising ‘Repeat Players’ Highlights Risk of Business Conflicts in Deals” —

  • “Kirkland & Ellis’ resignation from a large debt deal involving multiple firm clients offers a conflicts lesson for firms seeking to rapidly expand client connections in finance and private equity deals.”
  • “Business conflicts can be difficult to identify at the beginning of a deal, experts said, putting law firms in a tough position later on in an acrimonious transaction. Kirkland & Ellis, a dominant force in the deal space, was representing U.K.-based corporate travel company Travelport Worldwide in a $1 billion financing deal. The firm backed out of its advisory role to the company after debt investors that Kirkland also represents got into a legal tangle over the deal, according to a Thursday report in The Wall Street Journal.”
  • “Elliott Management Corp. and private equity firm Siris Capital Group, which collectively made a $2 billion investment in Travelport Worldwide last year, planned on shoring up their investment during the pandemic with an additional $1 billion in debt financing. But the financing was dependent on shifting some of the company’s valued intellectual property assets away from its current lenders, which include Blackstone Group and Bain Capital, both of which Kirkland has represented in other matters.”
  • “Indeed, it isn’t uncommon for firms to negotiate against investors they represent in other matters. It is less common, however, that the advising firm would end up having to back out of its advisory role when the deal becomes too contentious, Talley said.”
  • “‘This is not a conflict under the professional rules of conflict,’ said Stephen Gillers, a legal ethics professor at New York University School of Law. ‘This is a business conflict, which can be harder for firms to identify at the onset of a deal.'”
  • “But business conflicts are harder, and Gillers said that those conflicts are top of mind at the firms he has worked with. ‘When I talk to law firms about conflicts, the issue of business conflicts often arises,’ he said. ‘Law firms are more concerned about business conflicts than ethical conflicts. Not because they are unethical, but because they are able to anticipate ethical conflicts. The can’t as easily identify the business conflicts.'”
  • “Due to the mostly shrouded nature of private deals, it isn’t always publicized when conflicts among legal counsel arise amid these contentions dynamics. ‘It takes a legal fight for this to get into the papers,’ Talley said.
  • ‘That said, in order to handle these potential conflict areas and assess whether those are manageable, you have to monitor all things coming in, and that gets more complicated when you grow large as a firm and have teams that overlap each other.'”

Here’s the WSJ article for additional detail.