Interview with Weil

Interview with Thomas Léry, Lawyer at Weil Gotshal.

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I’ve been a lawyer for three years now, specializing in private equity and M&A. My initial two-year stint was with the law firm Goodwin, where I primarily worked on venture capital and private equity transactions across small, mid, and large cap segments. About a year and a half ago, I joined a firm called Weil Gotshal, where I now focus on private equity cases in the mid and large cap segments. I’m also involved in private M&A transactions for unlisted companies.

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How would you describe the key trends in the M&A market within the tech sector?‍

In recent years, we’ve seen a cyclical market. When I started in 2021 and 2022, the market was extremely active, with a high volume of deals across VC, PE, and M&A. However, there was a noticeable slowdown toward the end of 2023 and into 2024. While many expect a rebound in the coming months, the tech market has remained relatively robust in terms of deal activity, as numerous companies continue to attract investment interest.

One prominent trend has been the decline in valuations. In the early 2020s, some very young startups, even at Series A or B stages, were achieving high valuations that weren’t always backed by years of operational history. The market has since stabilized, which has tempered deal-making as founders may now consider the timing less opportune.

In private equity, we’ve observed a shift from classic LBOs or traditional fundraising to build-ups and company consolidations. Many funds have opted to expand existing investments by creating platforms or consolidating existing groups through acquisitions rather than standalone LBO transactions. This trend is particularly prevalent in tech, with significant consolidation activity across various tech sectors.

In contrast, artificial intelligence companies—which are often in early-stage development—typically lack the recurring revenues needed to appeal to LBO funds. However, we anticipate their appeal to private equity funds will grow as the sector matures.

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How does AI impact your profession?

‍As for AI’s role, we don’t yet see generative AI having a major impact in transactional law firms, which rely heavily on specialized expertise. Current AI solutions aren’t advanced enough to replace this expertise. That said, technological advancements are starting to make an impact, particularly in areas like heavy audits during M&A or private equity transactions.

Dataroom platforms are becoming increasingly sophisticated, offering enhanced features such as contract screening and keyword searches to identify key issues more efficiently. Similarly, automation tools are now being used in scenarios involving large numbers of stakeholders, such as employee investors or individual investors in venture capital or private equity deals.

For instance, I recently worked on a deal with nearly 200 signatories. Using AI-driven tools, we automated document preparation and distribution, saving 20 to 30 hours of manual work. This efficiency allows us to focus on strategic aspects rather than repetitive tasks.

However, there are two major challenges with AI adoption in law firms: confidentiality and quality. For example, translation tools like DeepL, which rely on machine learning, pose a risk as they can inadvertently retain client data. Law firms cannot afford to expose sensitive client information.

Secondly, the quality of AI-generated outputs remains a concern. Clients expect concise and legally sound advice, and current models are not yet capable of delivering outputs that match the depth and accuracy of experienced lawyers. A notable example occurred in New York, where an attorney used GPT for drafting and cited non-existent case law. Such errors are unacceptable in our profession, as clients rely on us for precision and trustworthiness.

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What are the main challenges you face when evaluating tech?

‍From a legal perspective, the core challenges in tech companies remain consistent. For startups that haven’t undergone prior fundraising or LBO processes, corporate governance can often be suboptimal. However, this is manageable through the recruitment of legal counsel or by relying on the support of private equity investors.

The more critical issues in tech often revolve around intangible assets, particularly intellectual property. For instance, we frequently encounter situations where founders have registered patents or trademarks in their own names rather than the company’s. While this might not immediately affect valuation, it can lead to significant complications if disputes arise, such as a founder leaving the company while retaining ownership of key IP.

Litigation also poses a notable risk, especially in cases involving allegations of unfair competition or patent disputes, as these can impact deal valuations. Solutions such as price adjustments or indemnities are often used to mitigate these risks.

In tech deals, our role typically involves analyzing and structuring legal models to ensure smooth execution. In some sectors, like fintech, regulatory authorizations are crucial and can significantly influence investor interest. Ultimately, legal advisors play a pivotal role in ensuring both the financial terms and the certainty of transaction execution align with investor expectations.

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Which developments do you anticipate in the Tech M&A market in the coming years?

‍Most lawyers anticipate a strong market rebound in 2025. Many tech companies will require substantial financing to continue scaling, particularly those like MistralAI, which recently raised funds and face ongoing liquidity needs. However, rising interest rates make traditional bank debt increasingly challenging.

While AI solutions show promise, there’s still hesitation about adopting them due to confidentiality and quality concerns. Nonetheless, startups are actively developing tools to address these issues, such as document duplication automation and more advanced dataroom solutions. These innovations will likely streamline M&A processes across sectors, not just tech.

The ultimate goal remains to use technology to simplify routine tasks so lawyers can focus on complex, high-value matters where human expertise is irreplaceable.

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When should companies involve lawyers?‍

When involve lawyers? That’s a crucial question. In deals involving significant financial investments, whether in M&A, private equity, or venture capital, lawyers ensure fairness among stakeholders, who often have divergent priorities.

While investment funds may seek to empower founders with decision-making freedom, they also require legal safeguards. Lawyers orchestrate these agreements, ensuring compliance with applicable laws and jurisprudence. We also introduce innovative solutions, such as warranties and liability insurance, to address emerging challenges.

By conducting thorough legal audits and overseeing transactions from start to finish, we provide clients with the assurance that deals are executed efficiently and in compliance with best practices. Moreover, our market expertise allows us to offer tailored, up-to-date advice, reflecting the latest industry trends and legal standards.

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‍Why call upon lawyers?‍

That's a very good question, and I think it's an important point to keep in mind. When you're investing so much money in companies, as we often see in M&A deals, private equity, and venture capital, it’s crucial to ensure fairness among shareholders of different types. There might be a private equity investment fund, a venture capital fund, and business angels or founders, all of whom have different concerns but ultimately want to protect the points that matter most to them.

For instance, when an investment fund invests in a company, it will typically leave the management to the founders. The goal is for the founders to have as much latitude as possible while still adhering to a specific list of reserved decisions that must be validated by a board. So yes, there’s a search for security that focuses on business-related matters, but putting this into action requires legal expertise. Some things are legally feasible, and others are not.

In the operations we handle alongside investment banks, the investment banker naturally serves as the financial conductor, while we act as the legal conductor. From A to Z throughout the transaction, once key principles are discussed with clients, it’s our role to bring them to life from a legal perspective and ensure everything runs smoothly. There are a lot of evolving case laws and new legal texts today, particularly concerning mechanisms like employee incentives. Recently, for instance, there was a reform of the regime for free shares.

These are key concerns for both founders and investment funds. On one hand, investment funds want to offer incentive mechanisms, but it’s essential to ensure they comply with the law, case law, and common practices. On the other hand, founders want these mechanisms to align as closely as possible with market standards.

The second point—and this is true regardless of the type of stakeholder, whether founders or funds—is that the business lawyer has an in-depth knowledge of the market and current practices. The founder’s job is to grow the business. The fund’s job is to invest. And our job is to handle transactions. So we have something of a benchmark within each law firm, and we know what market practices are. We understand what is acceptable, what is not, based on the position we represent but also according to market trends.

Even though I’ve only been doing this job for three years, I can already see how practices evolve. To give a somewhat technical example: previously, we faced challenges securing liability guarantees in certain deals. Sellers would provide liability guarantees to buyers under specific operations. But in private equity over the last three to five years, we’ve seen the development of liability insurance—something that didn’t exist before. Now, it’s a third-party insurer that takes on the guarantees provided in the context of deals. It’s up to law firms to propose these innovative solutions and strategies to clients, who may not be aware of them.

So yes, I would say it’s absolutely essential. Just as a financial audit is performed when acquiring a company, legal support is crucial both during the audit phase and the transactional phase to ensure the operation runs smoothly from start to finish. Post-transaction follow-up is equally important. If any issues arise—such as a partner leaving (which is not an ideal scenario) or a new fundraising round—having prior knowledge of the case makes it far simpler to manage. Ultimately, it allows us to provide a high-quality, tailor-made service when we have a deep understanding of the case.

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