By: Lauren Young

Every business acquisition carries risk. Entrepreneurs and investors know this well. They calculate market risk, operational risk, and financial risk before proceeding with a deal. However, Jeremy Tomes highlights a truth that is often overlooked: while numbers and projections can measure some risks, only a legal strategy can effectively manage them. Attorneys, he argues, are not simply advisors on the sidelines; they are risk managers at the very center of private equity.

Tomes emphasizes that the role of an attorney is not to eliminate risk, because in business, risk can never be eliminated. Instead, attorneys define, allocate, and mitigate it. They transform unknown risks into known risks and ensure that each party to a transaction understands and accepts its obligations. This transformation of uncertainty into clarity is what Tomes calls “the attorney advantage.”

Risk in Private Equity

When buyers approach an acquisition, they often focus on opportunity. They see potential for growth, efficiency gains, and value creation. Sellers, in turn, focus on maximizing their payout and limiting their obligations. Between these competing priorities lies a vast array of risks, some visible, others hidden.

Financial advisors can identify several risks, including cash flow weaknesses, seasonal revenue fluctuations, or debt burdens. However, many risks are legal, often hidden in contracts, compliance frameworks, or governance issues. These risks include:

• Contractual Risk: Agreements with vendors, customers, or employees may not survive the change of control.
• Litigation Risk: Pending or potential lawsuits may transfer to the new owner.
• Regulatory Risk: Industries such as healthcare, finance, and construction face stringent compliance rules that can result in fines or shutdowns.
• Intellectual Property Risk: Trademarks, copyrights, and patents may not be properly owned or transferable, potentially resulting in legal disputes.
• Employment Risk: Claims for unpaid wages, harassment, or wrongful termination may arise after the closing.

Tomes insists that spreadsheets cannot measure these risks. They require attorneys to identify, analyze, and address them before the deal closes.

Defining Risk

The first step in risk management is definition. Attorneys conduct due diligence to map out precisely what risks exist. Tomes explains that this process involves reviewing contracts, corporate records, employee files, litigation histories, and regulatory compliance. Without this definition stage, buyers are essentially purchasing blind.

For example, a buyer may assume that all vendor contracts will transfer after the acquisition. An attorney reviewing those contracts may discover “assignment” or “change of control” clauses that prevent transfer without consent. Without definition, the risk is invisible. With a definition, it becomes a negotiable issue.

Allocating Risk

Once risks are identified, attorneys negotiate how they will be allocated. This is where the real value of legal strategy emerges. Tomes stresses that risk should never remain vague. It must be explicitly assigned in the purchase agreement.

If a lawsuit is pending, who will be responsible if damages are awarded? If an environmental compliance issue arises, who will be responsible for the remediation? If a key contract cannot be assigned, what happens if it terminates post-closing? Attorneys structure the agreement to answer these questions with precision.

The allocation of risk is typically handled through representations, warranties, indemnification, and escrow arrangements. For instance, the seller may warrant that there are no undisclosed liabilities. If that warranty proves false, indemnification clauses require the seller to compensate the buyer. Attorneys like Tomes ensure that these protections are enforceable, detailed, and sufficient to cover real-world scenarios.

Mitigating Risk

Not all risks can be shifted entirely to one side. Some must be shared or mitigated. Tomes highlights creative legal tools that help reduce exposure, such as:

• Holdbacks and Escrows: Withholding part of the purchase price until certain risks are resolved.
• Earn-Outs: Tying part of the price to future performance, ensuring the buyer does not overpay for uncertain revenue.
• Insurance: Representations and warranties insurance can cover certain risks if warranties are breached.
• Closing Conditions: Requiring vendor approvals, regulatory clearances, or other actions before the deal is finalized.

These mechanisms transform potential deal-breakers into manageable risks, enabling both parties to proceed with confidence.

The Attorney’s Negotiation Edge

Tomes’ views negotiation as a critical aspect of risk management. Attorneys do not simply identify risks; they use them as leverage. When due diligence uncovers issues, attorneys can demand stronger indemnification, lower purchase prices, or alternative structures. Without attorneys, buyers may lack the tools to negotiate effectively, accepting risks they do not fully understand.

For example, suppose due diligence reveals that a company is under investigation for environmental violations. In that case, an attorney might negotiate for the seller to remain responsible for any fines or remediation costs. Without that clause, the buyer could be left with millions in unexpected liabilities.

Why Buyers and Sellers Both Benefit

While risk management is often framed from the buyer’s perspective, Tomes emphasizes that sellers also benefit from the involvement of an attorney. Sellers who fail to secure clear release provisions may find themselves embroiled in disputes years after the sale. Attorneys protect them by limiting liability, capping indemnification amounts, and defining survival periods for warranties. Strong legal protections enable sellers to move forward with confidence.

Real-World Examples

Tomes often illustrates the importance of legal risk management with real-world scenarios:

• A buyer acquired a chain of retail stores without realizing several locations were operating under expired leases. Within months, landlords demanded higher rents, erasing profit margins. Proper due diligence and negotiation could have prevented the issue.
• An investor purchased a small manufacturing company without verifying the intellectual property rights. Later, a competitor challenged the company’s patent ownership, and the buyer discovered the patents had never been correctly assigned. The entire value proposition collapsed.
• A seller failed to negotiate indemnification limits and, years later, was forced to cover liabilities the buyer claimed were undisclosed. Strong legal representation could have capped the seller’s responsibility and provided finality.

Each of these examples underscores Tomes’ philosophy: risk cannot be eliminated, but it must be defined, allocated, and managed strategically.

Attorneys as Risk Managers

Jeremy Tomes reframes the role of attorneys in acquisitions. They are not simply contract drafters or compliance checkers. They are risk managers who ensure that every potential threat is accounted for and addressed. Their work transforms private equity from speculation into structured, enforceable transactions.

Investors who rely solely on financial analysis may be caught off guard by legal pitfalls. Those who integrate legal strategy from the beginning gain confidence, clarity, and control. For Tomes, that is the true attorney advantage.

Conclusion

Private equity is about more than finding opportunities; it is about managing risk. Attorneys like Jeremy Tomes provide the tools, frameworks, and strategies that transform acquisitions into secure investments. They define risks through due diligence, allocate them through contract negotiation, and mitigate them with creative structuring. Without them, buyers gamble. With them, buyers proceed with confidence.

For both buyers and sellers, the message is clear: risk is inevitable, but unmanaged risk is avoidable. Attorneys are the difference.

Learn more about Jeremy Tomes and his expertise in strategic risk management at biglawcapitalist.com.

Disclaimer: The content provided in this article is for informational purposes only and should not be considered as legal or financial advice. Success in private equity transactions may vary depending on individual circumstances. Readers are encouraged to seek personalized guidance from qualified professionals for specific concerns related to business acquisitions and negotiations.