Global menu

Our global pages

Close

Coronavirus - How to progress your M&A deal through the smart use of technology - Global

  • Global
  • Coronavirus - M and A issues
  • Corporate

09-06-2020

The recent and unexpected increase in remote working as a result of Covid-19 has shaken up the legal world, particularly the manner in which M&A transactions are undertaken. Fundamental M&A issues such as due diligence, negotiations and completion, which traditionally comprise long-established methods not compatible with remote working, must be re-worked and re-thought. The market has quickly adapted by using technology to overcome the obstacles remote working previously posed to M&A transactions. Looking to the future, these adaptions are a welcome silver lining to the pandemic that has forced the industry to accelerate its use of technology and, as a result, we would expect lasting improvements to deal efficiency, project management and client service.

Site visits and Management Presentations

Site visits and management presentations have become difficult or impossible due to travel restrictions. Although in person presentations can be substituted for video conferencing, we see issues around site visits as a big driver for the recent drop off in M&A activity, particular in sectors where these are key (e.g. Diversified Industrials).

Innovative solutions include virtual site visits using video tools and drone recordings to inspect site exteriors. The effectiveness of such options will depend on sector and deal specifics and there are drawbacks making them inferior to a physical inspection. The importance of site visits should be tested to ensure they are necessary to address a specific risk. There may be unavoidable delays, for example for environmental surveys, with alternative potential solutions being to price the risk into the valuation or defer a portion of the consideration pending a later survey.

Buyers will seek more contractual protection regarding sites but expect this to be resisted by sellers, particularly financial sponsors.  The extent to which due diligence responses will be warranted will be heavily negotiated. 

We have seen vendors acting as co-manufacturers/subcontractors following completion and continuing to deal with employees who have transferred so that the seller remains responsible in some way under a TSA/co-manufacturing agreements until the formal due diligence can be completed. This is not a straightforward option but may offer some comfort where the deal timetable is important.

Negotiations

Collaborative online tools and online conferencing offer good alternatives to in-person meetings. Many negotiations took place over the phone anyway, so current circumstances are more of a stress test and not critical.

As with all online communication, encryption, cyber security, multi-factor authentication, cyber/phishing attacks, training must be addressed appropriately.

Feedback on video conferencing remains mixed, with some negotiators preferring not being on screen so they can confer with colleagues or review documents whilst on mute. Technology is evolving with extra functionality such as break-out rooms to mimic the typical physical negotiation format. We would expect further innovations in this arena as working from home becomes the norm.

Good business sense dictates that we all need to develop appropriate and professional video conferencing etiquette. 

Due Diligence and disclosure

Those businesses that have invested in document management systems such that copies of signed legal contracts are easily accessible remotely will find it much easier to populate on-line data rooms during lock down.  Online data rooms have been the preference of buyers and sellers for a number of years in light of ease with which it enables parties to share data about a target. Increasingly data room providers are incorporating functionality which enables them to operate in conjunction with artificial intelligence software (“AI”).

Using AI to undertake due diligence facilitates the rapid identification and extraction of key issues. Such software has the capacity to review of thousands of documents and to accurately report on material issues at a fraction of the rate it would take humans.

Expediating the due diligence process in this way may strengthen a buyer’s negotiating position by ensuring that business critical red flags are identified at the outset and therefore addressed in a manner which results in more advantageous deal terms.

Similarly, AI can be used to ensure that the documents provided as part of disclosure do not contain any business critical red flags which are not otherwise clearly identified within the disclosure letter. 

While cognitive technology is no substitute for lawyers, it has the potential to streamline two phases of M&A transactions which had previously been laborious, expensive and time consuming. Involving AI can markedly speed up M&A transactions and provide further reassurance to a buyer’s board that the business critical red flags have been identified and factored into the deal mechanics and pricing as appropriate.  

Documenting the transaction

Digital collaboration platforms, such as Eversheds Sutherland’s DealMaster, facilitate the efficient, coordinated and seamless delivery of M&A transactions. Such platforms collate and centralise due diligence reports, draft transaction documents and advice notes. This gives  clients, local counsel and other transaction advisers the ability to monitor outstanding deal issues and critical red flags in real time, particularly when trying to complete a deal whilst working remotely.

Consequently such platforms give clients easy access to information that:

  • having a strong negotiating position;
  • monitoring the progression of the transaction in real time; and
  • satisfying internal reporting requirements which may be required by a buyer or seller’s board.

This can be particularly helpful in transactions involving multiple jurisdictions, complicated pre-sale reorganisations or competitive auction processes. 

Undertaking steps between signing and completion

The ongoing Covid-19 pandemic has demonstrated that some actions which are required to be undertaken between exchange and completion may be still be undertaken in a remote working environment through the use of technology.

Providing there are no restrictions in a company’s articles of association, the requirement for corporate authorisations may be satisfied remotely through written resolutions or virtual meetings held via teleconferences or webcasts.

Employment consultations such as those used to effect changes to remuneration, redundancy or TUPE transfers may also take place remotely. Meetings may be held with employees by way of a teleconference or webcast with circulating letters, minutes of meetings and FAQs being provided electronically. However, it is important to ensure that the process and technology to be used is properly thought through and tested in advance, particularly given the sensitive nature of this activity.

Completion

E-signature platforms are starting to see wide-spread adoption across jurisdictions, although not every country accepts electronic signatures and some documents still need to be signed in wet ink. Take local counsel advice as to the enforceability of e-signatures as part of the planning process, particularly where completions may require the involvement of a notary or for a document to be apostilled.

It is important to consider whether e-signatures can be used for all or part of the completion process as early as possible. Regarding the wider considerations of managing the completion process, involve all parties to the transaction, being aware all parties will need to agree on what is and is not acceptable.

Post-completion

Following completion, consider how you are going to collate and share the deal bible securely, whether through an electronic signature platform or a collaboration portal, such as Deal Master. Such platforms have the functionality to make these documents instantly available to all transaction parties (all transaction advisers, funders, the buyer, seller(s) etc.) irrespective of location.

The efficient circulation of signed transaction documents can help to ensure that the following are dealt with in a timely manner:

  • any post-completion filings which arise; and
  • any sensitive conditions subsequent; and
  • post-completion pricing mechanics (such as completion accounts).

Conclusion

The remote working practices required by Covid-19 have accelerated the adoption of technology across the legal landscape, and in respect of M&A, particularly due diligence and e-signatures. In what is traditionally a sector conservative to change, we can now expect technological step-change forward as we adapt to the new normal in the post-Covid world. The technological changes we are making now will no doubt help in-house counsel deliver M&A deals in a more efficient way in the future.