Mergers and acquisitions: ticking all the boxes
Jenny Hotchin presents key objectives for legal teams for mergers and acquisitions
2021 was a banner year for mergers and acquisitions (M&A) transactions. There were nearly 62,000 global mergers and acquisitions – a new record. As 2022 is expected to continue at a similar head-spinning pace, what should firms be doing to make sure they are delivering those transactions most efficiently?
There are a few core practices legal teams can implement that can help keep client satisfaction high and write-offs low, while removing some of the most common headaches from the process. The best part? Most of them are small, simple changes that teams can make today, without having to purchase a single thing.
Set clear communications protocols
Sounds basic, but this might be the most important thing a legal team can do. How are you going to communicate with all the different people involved in a deal? For instance, how should the corporate team communicate with the various stakeholders at the client, all the other advisors involved and, perhaps most importantly, who may give instructions and how are they going to be given?
Sitting down with the client ahead of time to hammer out the communications protocol is a way to avoid wasted time later in the transaction. When unexpected developments pop up – which they inevitably will – you've already got an agreed way for all the different parties and stakeholders to communicate, which will help keep the transaction moving along.
Practice good project management
Legal transactions can go on for months, spanning multiple different stages, so it’s important to set and agree to timelines for all the parties.
Also, if you want projects to run smoothly, take a moment to consider dependencies, so you're not trying to push one team to do some work when they can’t because they're waiting on information from another team.
Don’t forget workload management
When teams are working late nights and weekends for weeks on end to close deals, they might start to wonder: “Was anyone in charge of workload management on this project?”
Moral of this story: make sure someone actually is assigned that task. Take some time at the outset of the project to write down how exactly work is going to flow through all the different stages and what it’s going to take from a resource and capacity perspective. When you actually take the time to write down what you’re doing, you can much more clearly discern where the potential crunch points are.
Embrace the Virtual Data Room (VDR)
There’s enough useful functionality in VDRs these days that everyone on the transaction can benefit from some training, even if it’s just an hour of training at the outset. Note, ‘everyone’ does not mean ‘just the trainees’ or ‘only the junior associates’.
Additionally, you should nominate a point person to be in charge of the VDR and to ensure the documentation within it is well structured for the particular requirements of the transaction. This person should be someone who has experience with VDRs and understands best practice around them, not the most junior lawyer on the team.
Streamline due diligence
If legal teams have tackled the fundamentals above, they can start to introduce pieces of technology to tackle specific aspects of the transaction, like the due diligence stage.
Rather than reviewing heaps of contracts manually, legal teams can use an AI-powered product to read, extract and structure key clauses and information. This significantly shaves down the amount of time spent on the task without impacting the quality of service delivered. Teams using such tools will typically be looking to reduce due diligence review time by anything between 10 per cent and 30 per cent (depending on the nature and complexity of the review).
Be clear about fees and budgets
There’s no quicker, easier way to get a client miffed than by hitting them with a surprise bill because you weren’t being open and transparent about fees and budgets.
Understand the budget you're working to so you can scope the work accordingly. If it looks like budget isn't sufficient, have that conversation with the client early and often. This gives the client the option of increasing the budget or decreasing the scope, if it is done with consideration of the specific risks of the project.
Also, consider using those AI tools to better scope the project in the first place, for more accurate fee projections.
Take security seriously
There's a heap of great data that's collected as part of any M&A transaction. Unfortunately, it's not just valuable to those involved in the transaction – there are plenty of bad actors who would be happy to get their hands on that data.
If you are bringing in various tools and technologies to support your legal transaction, make sure it’s not just a random app you downloaded from the web – do your due diligence. Is it from an established vendor? Does it comply with ISO standards? Does it offer encryption from end to end? In addition to being selective about what tools you use, continuous monitoring of sensitive content with threat monitoring software helps add an extra layer of protection against any internal or external threats.
Make room for transaction management tools
There’s not a single corporate lawyer on the planet who hasn’t been on a deal where the signing exercise turned into an absolute nightmare due to a last-minute change in something like the date, which meant hundreds of documents had to be changed.
Legal transaction management (LTM) software eliminates these kinds of messy, repetitive tasks. By automating tasks and workflows around deal closings, Closing Folders reduces errors and confusion, frees up bandwidth for lawyers to focus on more important aspects of the deal, and – perhaps most important – improves client service.
Share the knowledge
How many times a day does an all-hands email fly around asking something like “What are people seeing in terms of trends on limitation of liability?”
It’s possible a team just got done with an M&A last week that centered around that very issue – but all of the knowledge is trapped in their heads rather than broadly available to the organisation.
Make sure you have a plan for knowledge sharing once deals are completed. It increases the overall performance of the team, which in turn increases quality of service to the client – not to mention cuts down on all those emails flying around. New products that use AI to automatically identify experts and expertise can be of great assistance in this regard.
Have a post-deal plan
According to research by Deloitte, over 60 per cent of M&A transactions fail to deliver their anticipated business case value. So, what can the legal team do to improve those odds?
First and foremost, they should aim to truly understand the intent behind the deal. There are lots of reasons a company might buy another company, just as there are myriad reasons why a company might be for sale. What is the client really looking to get out of the transaction?
The more legal teams can use the knowledge picked up during the course of the transaction to guide the post-transaction course of action, the better. For example, if Company A is buying Company B mainly because it wants to achieve economies of scale and efficiencies, the legal team might point out certain supply contracts that could be consolidated based on knowledge they gained during the due diligence process. This type of value-add is what helps law firms stand out from the competition in the eyes of the client and helps them secure internal referrals and future work.
No time like the present
The volume of M&A transactions is predicted to stay high for the foreseeable future. That’s good news for corporate legal teams, but also a strong incentive to make sure they are delivering these transactions as efficiently as possible, particularly since competition for M&A work in this sizzling market is only going to heat up. Fortunately, making even just a few of the changes outlined above can deliver big efficiency results, which is why there’s never been a better time for legal teams to start small and make sure they’re ticking all the boxes on the basics.
Jenny Hotchin is legal practice lead at iManage imanage.com