Comment: Mergers & Acquisitions in Europe – should lawyers be making use of available technology?
by James Farnell & Gustaf Duhs
With the volume of stored corporate data increasing exponentially year-on-year, this article considers some of the challenges practitioners face in dealing with Merger & Aquisition transactions and the extent to which technology can intervene to assist lawyers.
There has been much press coverage recently about the new cost management requirements in civil procedure and how e-disclosure technology is being brought in to manage these costs. However another area where the cost of sifting through large volumes of Electronically Stored Information (ESI) is often high is in the merger and acquisition (M&A) field.
M&A activity is on the rise, with the total value of global M&A deals reaching $492.7bn by the end of February 2013, up 24 % on the first two months of 2012, according to data provider Dealogic.
Whilst in Europe e-disclosure technology is used principally by litigators and regulatory lawyers to help parties, collate, cull, analyse and review large volumes of documentation for disclosure or production purposes – the same technology can be applied in an M&A context both in pre-merger investigations and to comply with merger control regulations.
In fact, our American counterparts and US companies are already making extensive use of such technology to comply with the Department of Justice (DOJ) or the Federal Trade Commission (FTC) requirements on merger control. There is often a substantial volume of documentation that needs to be reviewed and analysed when producing 4(c) and 4(d) documentation as part of the Hart-Scott-Rodino (HSR) pre-merger process.
Whilst the use of technology in the due diligence and merger control process in Europe is less common this is not necessarily because the process is less intense in terms of the volume of documentation and data involved. Even in cases where less material needs to be looked at, there are efficiencies and a strategic advantage to be gained from the use of technology. We examine below some of the advantages gained by practitioners relying on technology in an M&A context.
In terms of examining information pertinent to an acquisition or merger, virtual data rooms provide an efficient way for a company to make this information accessible to a number of potential buyers in a secure and recordable format.
However, some companies, including private equity firms are now taking the process of due diligence one step further. Normally this occurs when negotiations have progressed between two parties and the acquiring company wishes to ensure that the risk of acquiring any anti-competitive or non-compliant behavior is minimised. This is prudent where the company being acquired has had dealings in markets that have been the subject of anti-competitive behavior or if the company operates on a global basis and in countries that tend to have higher levels of corruption and/or bribery.
There are various means to assess this risk depending on the nature of the transaction. For example one way is to collate the emails and correspondence of the sales team that operates within a certain region of the company being acquired, so these can be anyalsed and reviewed by a third party, such as a law firm, to establish if there are any concerns about deals that have been previously concluded or if there are any signs of collusion with other firms in the same market space.
Patterns of communication between employees and 3rd parties can be tracked for a fast appraisal of the situation.
In the sphere of merger control activity, technology and technical experts can help practitioners manage a number of different challenges:
• Gathering information for filing
Technology can help practitioners ensure the merger control process runs more efficiently and smoothly for the parties involved. Assembling the pro-competitive information required for notifications can be an arduous task. Technology providers may be able to assist internal IT teams identify and collate information that is relevant to the Notification or in response to further information requests from the authorities either at the phase one or phase two stage. The short overall time limits during the first phase tends to add urgency to the process of producing the information requested and information provided at this stage can be deal critical. These situations are ideally suited to the use of technology which is able to prioritise relevant material.
• Communication with the client
During pre-merger negotiations practitioners may find that their access to the client is restricted. When both the internal and external legal teams and senior management of the company are focused on the commercial aspects of the deal, a technology provider can act as the “go-between” between the lawyers and the IT teams, to ensure the information is captured in a timely fashion, so it can then be reviewed.
• Efficient review of relevant documentation
Depending on the specifics of the matter, if information requests are made during phase one with a particular emphasis on internal documentation, technology can play a pivotal role. Once collated, data review and analysis tools can be used to quickly identify relevant documents and analyse and review them to check if they are relevant to the authorities request and that they are not subject to legal privilege. Information provided at phase one can be deal critical and the short overall time limits during the first phase tends to add urgency to the process of producing the information requested. It is essential that a party submitting this information does so in a timely but also accurate and comprehensive fashion. This situation is ideally suited to the use of technology which is able to prioritise relevant material. This can also be of help in the second phase when the time periods to respond might be longer but the information requested is broader as a more in-depth and data intensive investigation is carried out by the authorities. One pre-emptive step that may be advisable is for the relevant internal documentation to be pro-actively uploaded into an early data assessment platform, so that it is readily available in a searchable and easily reviewable format should the authorities request further information.
So, where does the technology add value?
A cost benefit analysis will need to be undertaken for each particular project but in general the use of technology yields demonstrable benefits to parties tasked with reviewing and producing even smaller volumes of information in cases. There is a distinct strategic advantage in having the facts at your fingertips and searchable where legal and commercial risk assessments are required in short-time frames.
Filtering technology, document review platforms and more sophisticated data analytic tools in the US has proved to be very helpful to ensure that the parties’ are able to comply with merger control requirements and keep costs to a minimum when complying with the DOJ and FTC requests.
The increased efficiency of the search for relevant documentation, better access to documentation, and faster and more sophisticated analysis of the available documentation should serve to cut overall costs in the M&A process. In our view it is therefore only a matter of time before the lawyers use technology more routinely in the M&A context.
* James Farnell is a Legal Consultant, Continental Europe for Kroll Ontrack and Gustaf Duhs is Head of Competition and Regulatory, Stevens & Bolton LLP.