IPO rush pushes legal fees up to 30%

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MUMBAI : Law firms, overwhelmed by wave of IPO work, require companies to pay 25-30% more on average to help them comply with regulations and draft first sales documents shares, senior partners of the law firms said.

No less than 38 companies have reached primary markets this year, the highest number in a decade, mobilizing more than ??60,000 crore, based on data from exchanges and primary market tracker Prime Database. In addition, 42 people are awaiting approval by the Securities and Exchange Board of India of their draft IPO documents, seeking to join several others who have already obtained approval from the market regulator.

Dozens of other companies have started the IPO process, increasing the demand for experienced lawyers to handle legal work.

“Senior partners of some firms are currently processing 10 or more transactions at any one time,” said a partner at a Mumbai-based law firm. “While you have about 20 investment banks of varying sizes, there are hardly seven law firms of any significant size working in the capital market. Since most of the work on the IPO document is done by lawyers, the teams are under pressure. “

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Wave of IPOs boosted demand for experienced lawyers to handle legal work (Photo: mint)

Considering the number of transactions that most law firms are handling now, people are now abandoning new work if the fees are not attractive, he said on condition of anonymity.

“Companies frequently quote ??Fees of 1.5 to 2 crore for IPOs, sometimes even more, and the average fee has easily increased by 25 to 30%, “he added.

Depending on the amount of funds to be raised, an IPO will generally require at least 3 to 4 investment banks. For the sale of very large stocks, up to 10 may be necessary. But each IPO typically only has two law firms, one representing the company and the other representing the investment banks. In cases that require marketing overseas, an international law firm is hired.

However, an investment banker, speaking on condition of anonymity, said that even in transactions that do not require international marketing, lawyers ask companies to hire an international law firm to share the load. of work.

“Previously, a single senior lawyer handled the entire transaction; then the firms started having two lawyers on each transaction to share the load; then you had firms saying they would take deals that had international marketing so that there would be a foreign law firm to share the workload. And now even in the small business to say ??500 crore, where you usually don’t need to go to foreign investors, even in these deals, law firms ask a foreign firm to be hired, ”the investment banker said, under cover. of anonymity.

He added that this trend has resulted in a significant increase in legal fees, especially for small businesses.

“Previously you thought your legal bill would come in at around ??1-1.5 crore; but now every business is citing this as a fee. In some cases, we have also seen companies offering fees as high as ??2.5 crore. And if you have to use a foreign law firm in a deal where you don’t necessarily need it, the overall legal costs can be around ??5 crore or more, ”he said.

Granted, the rise in fees is also due to historically low levels law firms were forced to charge earlier, said another senior partner at a law firm.

“Capital market charges have always been skewed down and have stagnated for many years. And even now, we’re not close to merger and acquisition fee levels, ”he said, on condition of anonymity.

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