by Ed Boal, head of legal at Shieldpay
In the fast-paced world of mergers and acquisitions (M&A), time is of the essence. The ability to close deals swiftly and securely can make or break the success of a transaction.
However, as with any high pressure environment there are a number of challenges that dealmakers typically face: complex legal and regulatory considerations, intricate negotiations, drawn-out due diligence processes, and tricky coordination between multiple stakeholders. These challenges can all create roadblocks when trying to get a deal over the line.
By streamlining payments, ensuring compliance, and improving efficiency, key M&A deal participants, including financial advisers and lawyers, will be in a strong position to close deals in good time and increase client satisfaction.
So how can payment automation be utilised to speed up the deal closing process, helping M&A lawyers stay ahead of the curve?
The “Deal Drag” Dilemma
Over the last few years, the time it takes for an M&A deal to close, has significantly increased. The speed of this process is consistent with a recent study from Gartner that indicates that the average time to close a deal is now 38 days, up 30% from 10 years ago.
This ‘deal drag’ can be a result of several different factors including market uncertainties, stakeholder coordination and regulatory scrutiny. Regulatory authorities now closely review transactions to ensure compliance with not only industry-specific rules, but securities regulations and competition law too, using thorough assessments to cover all financial, legal and operational aspects. Recognising these factors is key for stakeholders to explore solutions that can expedite the process and drive more efficient M&A transactions.
How to Change and Meet Client Expectations
That said, today’s clients – accustomed to the rapid pace of technology and its convenience – expect their M&A deals to be executed with speed and efficiency. Advancements in technology and a desire for a competitive edge are driving clients to demand quicker turnarounds and streamlined processes.
To meet these evolving client demands, businesses must embrace change and adapt their approach. This means leveraging technological innovations and process improvements to expedite deal timelines and deliver a seamless client experience. This has been seen in the adoption of machine learning tools in the due diligence process, document automation tools for preparing first drafts of deal documentation and transaction management solutions to manage the execution process.
To unleash the power of payment automation solutions, dealmakers can forge partnerships with forward-thinking payment providers, leveraging their expertise to simplify and automate the payment process. By implementing payment automation, businesses can reduce administrative burdens, improve accuracy, ensure compliance and facilitate faster deal closures.
Embracing alternative payment solutions
Many of the large banking institutions offer paying agent services which law firms turn to for M&A deals in order to offload some of the administrative burden and regulatory risk of handling client monies. In some instances, an escrow service may be necessary to hold funds pending completion accounts adjustments, regulatory approvals, registrations of transfer, expiry of warranty and indemnity periods and payment of deferred and earn-out consideration. These banks also offer this service and act as trusted intermediaries, securely holding funds or assets until the parties are satisfied that all deal conditions have been met. Although these can be seen as a critical component to getting a deal across the line with all parties confident in the proposed transaction, the administration involved can add extra work for legal teams hitting profitability, and pose challenges for being slow and cumbersome.
Alternatively, law firms may choose to manage transactional payments through their client accounts, but this approach presents its own challenges, including regulatory burdens, stakeholder management, and manual due diligence checks.
Now, law firms don’t have to settle for these outdated payment methods. New, cutting-edge solutions are emerging to address the challenges of the M&A deal process. Digital payment solutions are re-imagining paying agent and escrow services changing the game for dealmakers. With these solutions, deal times can be significantly reduced, and the closing procedures streamlined to benefit the legal teams, buyers and sellers alike.
The power of payment automation
Payment automation stands as the catalyst for revolutionising the M&A landscape, enabling law firms and their clients to break free from the shackles of deal delays. Digital paying agent and escrow solutions offer significant advantages compared to traditional alternatives, addressing key pain points and streamlining the overall process.
Through these solutions, the burden of administrative tasks throughout the payment process shifts away from the law firm, as the end-to-end process is handled seamlessly on their behalf. A key component of this is KYC management. This eliminates the need for the manual handling of large amounts of sensitive client data, as identity and bank account information are securely collected, verified and stored on a single platform.
The days of law firms chasing payees for information are long gone – replaced by automated online verification checks, ensuring accuracy and efficiency. Moreover, the implementation of open banking technology allows for almost instantaneous bank account verification, reducing the risk of payment errors. The result of which is a substantial decrease in transaction time and, critically, the ability to seamlessly facilitate any transactional complexities, whether that be high volumes of payments or cross-border payments.
By embracing technological advancements and leveraging automated payment solutions, law firms can meet and exceed client expectations, streamline processes, and shape a future of faster, more efficient, and secure deal closures. The time is ripe for the M&A industry to embrace payment automation and embark on a transformative journey toward accelerated success.
Having spent 13 years in private practice as a tech lawyer, Ed Boal moved in-house as head of legal at B2B payments specialist Shieldpay in April 2023. You can find him on LinkedIn here – https://www.linkedin.com/in/edboal/