We take a look at the core challenges with the M&A process, and see how technology can make Mergers & Acquisitions more streamlined and less manual.
Global M&A activity reached a new record in 2021, due to low interest rates, rising stock prices and a huge volume of dry powder held by private equity houses.
The United States alone accounted for $2.14 trillion worth of mergers & acquisitions (M&A) deals in 2021, while Europe and the Asia-Pacific raked in $657 billion and $620 billion, respectively, according to Refinitiv data.
The most active spaces for mergers and acquisitions have been technology, financial services and industrial sectors, with renewable energy and ESG deals also fuelling a lot of activity.
However, from a legal perspective, many M&A deals miss crucial deadlines. Some even fail due to a lack of efficiency and collaboration of the counsel. And while there is no singular reason why M&A deals pose problems for legal teams, there is a series of common challenges.
In this article, we’ll take a look at the core challenges with the M&A process, and show you how technology can optimize mergers & acquisitions at your firm.
Table of contents
- 5 core challenges of the M&A process
- How technology increases efficiency in M&A due diligence
- 6 ways automation can improve your M&A process
- How M&A process automation works in practice
- Get started automating your M&A process today
5 core challenges of the M&A process
From a legal perspective, M&A deals are executed through a complex web of (often cross-jurisdiction and cross-practice area) processes and structures. Each of these necessitates a careful evaluation of risks and opportunities. And those needs often lead to inefficiencies and operational challenges that need to be addressed.
The good news is that those challenges are addressable with digital solutions. But before we dive into solutions, let’s outline the problems more clearly.
Here are five main challenges of structuring and executing M&A deals.
1. M&A due diligence — issues with accuracy
As part of the due diligence process, a large amount of information must be collected. This includes anything from financial information to key terms in material contracts to employee profiles and intellectual property. And this often needs to happen on a very tight deadline.
Because of cost pressures, M&A due diligence is typically conducted on a sample of the target’s documents under strict deadlines with multiple transactions happening at the same time. This opens up the business to the risk of missing something very important in the review stage.
To tackle this, it is essential to create an intuitive and accessible framework through which (i) legal professionals can conduct their review; and (ii) senior legal professionals can oversee the review. The only way to mitigate this risk and offer a best-in-class service is to effectively utilize technology. We’ll take a deeper look at the role of technology in the next section of this article.
2. Administration and collaboration
Law firms often struggle to stay on top of outstanding administrative items and effectively collaborate across departments and jurisdictions. While error-prone and inefficient, Word, Excel, and email still seem to be the go-to tool for conducting deals. To avoid missing vital information, a digitized M&A transaction checklist is a must. Here, efficiency is key: a good M&A process checklist ensures that all the steps are followed through and all the areas covered.
But this is just one part of the process. It is also crucial to have a platform that lets teams collaborate and manage deals in real-time, without relying on mistake-ridden emails and Excel.
While before companies could make do with manual processes, with junior lawyers and trainees compiling and sending out spreadsheets daily or weekly to check in on progress, today the pace is entirely different. Dealmaking requires transparent and real-time collaboration, with automated workflows.
3. M&A transaction management and reporting to clients
M&A transactions span many areas, including regulatory timelines, competition clearance, negotiations, and due diligence, for starters. At the same time, clients working in-house have a far clearer set of requirements in transaction management than before.
Today, companies must keep clients up-to-date on key items in transactions. A few bullet points in an email or a static checklist no longer suffice. Instead, both companies and clients need a two-way communication channel, like a platform through which (i) law firms can update and communicate with their clients; and (ii) clients can easily access and understand the course of the transaction.
4. Staying on top of the regulatory framework
Staying on top of the regulatory framework is essential, in particular for M&A public deals. There are several regulatory considerations to make — from antitrust laws, listing rules, and ESG requirements, to pension and employment laws.
In this scenario, a digital platform helps lawyers not miss crucial deadlines and stay up to date with the latest changes in regulation.
5. Data privacy concerns
In M&A deals, it is crucial to understand how data is used, as well as the range of potential vulnerabilities and exposures. All these potential threats may lead to a data breach, regulatory fines, and ultimately deal loss.
How technology increases efficiency in M&A due diligence
The goal of an M&A due diligence procedure is to disclose and review the seller’s business and make sure all agreement details are in order. For compliance and legal experts, this means analyzing numerous documents, often manually, including corporate formation documents, financial documents, key commercial contracts, or the intellectual property portfolio.
But it’s not just the scope of the due diligence process that’s challenging. Often, the documents that need reviewing are stored in isolated corporate hard drives and personal folders, which makes it difficult to compare documents across systems efficiently, especially when having to meet a tight deadline.
How manual M&A due diligence affects law firms
Historically, M&A processes, due diligence in particular, have always been managed through a manual process of long email threads, spreadsheets, virtual data rooms, and long meetings.
Manually reviewing of documents increases the chances of human error in high-value transactions and is exceedingly time-consuming. Not only does this fuel frustration across the firm and the client company and decrease employee morale, but it also has an impact on the entire deal’s integrity. And yet, going back and forth correcting these errors manually further postpones the transaction and decreases overall client satisfaction.
The task is also often capped at fixed fees. So, when the review process demands extra research, the law firm cannot charge additional billable hours. Instead, fixing these issues becomes a task assigned to junior legal professionals, who usually lack the necessary experience to identify red flags on time.
The alternative to the manual M&A process
To improve efficiency, companies turn to digital solutions. Using a single, centralized platform, M&A teams can increase the speed of communication, identify risks and exposures more promptly, centralize knowledge, conduct automated due diligence, and draft any ancillary document.
M&A automation eliminates most of the risks connected to the lack of strategic thinking, which often gets lost in the bulk of administrative tasks.
By letting law firms automate otherwise manual and costly tasks, the platform minimizes the likelihood of missing key information and reduces the amount of repeatable and error-prone tasks that eat up lawyers’ time.
Removing repetitive work (like sending out questionnaires to clients and manually reviewing large volumes of documents and data) allows M&A lawyers to focus on strategic and legal thinking while being able to monitor the status of the deal and identify risks promptly.
6 ways automation can improve your M&A process
The full due diligence process can be streamlined to drive for efficiency. A good platform is also tailorable to comply with each organization’s unique requirements and compliance procedures. Because those requirements and procedures can change, your platform should be easily configurable by legal and compliance professionals directly — without the need to code or involve the IT department.
To learn how to get started with platforms like BRYTER that don’t require coding or IT support, you can download the “No-Code Guide” below.
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Now let’s take a look at the top six ways you can use legal tech to improve your M&A process.
1. Document review
Document automation allows large volumes of documents to be quickly and efficiently reviewed leveraging a questionnaire-style app that guides the lawyer through the most common red flags and sensitive contract provisions. It can be integrated with text extraction tools for increased efficiency. The dashboard visualization allows you to track the status of the due diligence, gathering useful statistics and data helpful to structure your review.
2. Transaction management and collaboration
Every document and piece of information gathered can be recorded in a database and displayed via customized dashboards and trackers. This helps assign ownerships of tasks, monitor the status of the transaction and share such information with the clients. BRYTER’s no-code tools can be integrated with existing or native databases, working as central repositories of relevant data and workflows trackers.
3. M&A due diligence checklists
Due diligence checklists are often rule-based and can be broken down into decision trees that are easily automated. Once your checklist is digitized, you can easily review documents and reach out to the relevant clients to gather additional information as needed.
4. Post-closing activities
Documents gathered during the deal structuring and negotiation can be retrieved from databases and easily used. Having a clear overview of the transaction helps prioritize post-closing activities such as side letters, privacy notices and other ancillary documents to be produced. You can auto-generate summary reports of the findings from the due diligence process to reduce the time cost for producing standardized reports and make these easily accessible.
5. Data privacy risk management
Data privacy and security risk assessments can be easily conducted based on legal requirements. The results are then used to evaluate the business purpose of the transaction as well as to populate reports. A risk assessment module can also include specific advice on whether any authority should be involved or notified. Rapidly identify contracts with key risks and set a risk level to assist in the overall review.
6. Regulatory assessments and updates
A self-service knowledge management tool allows lawyers to find relevant regulatory resources and advice tailored to a specific transaction, ensuring compliance with all applicable regulations, accessible 24/7.
How M&A process automation works in practice
Let’s take a deeper look at BRYTER’s M&A Due Diligence Platform, where legal professionals are able to fully automate the due diligence process and tailor it to each client’s requirements and compliance procedures.
By letting law firms automate otherwise manual and costly tasks, the platform minimizes the likelihood of missing key information and reduces the amount of repeatable and error-prone tasks that eat up lawyers’ time. Within the tool, it’s possible to either upload documents manually for review, or use a contract review tool to import raw data.
The tool also lets users identify contracts with key risks and set a risk level to assist in the overall review process. It also comes with a risk scoring feature which generates a risk score for the document, and is then flagged to relevant teams.
The open architecture and modular build of the BRYTER no-code platform make it easy for lawyers to customize the module themselves, take care of any changes in regulations, and provide a tailored due diligence process during M&As.
Streamlining the M&A process
The full due diligence process is automated to drive efficiencies in the orchestration of due diligence projects as well as being tailorable to comply with each organization’s requirements and compliance procedures.
The platform comprises risk scoring features to rapidly identify contracts with key risks and set a risk level to assist in the overall review.
M&A transaction databases
Get a bird’s eye look at all of your transactions. BRYTER no-code app builder can be integrated with existing or native databases, working as central repositories of relevant data and workflows trackers.
Get started automating your M&A process today
The challenges of the M&A process won’t go away on their own. And the positive business outcomes of M&A process automation with the right platform are clear:
- Full customization — The tool can be easily modified and integrated to tailor transaction-specific needs and include up-to-date changes in regulatory guidance.
- A single platform —M&A processes and statistics are organized in one platform and updates are easily accessible. The tool can be integrated with data extraction software.
- Quick review — Reduce time spent on non-billable review and human errors.
- Easy drafts — Draft due diligence summary reports easily and use billable time to review only red flags, providing advice accordingly.
Savvy lawyers are embracing legal technology to tackle the challenges proactively, and they don’t have to go it alone. It’s best to get help from the experts.
If you’re interested in automating your legal processes, including M&A transactions, reach out to book a demo and ideation session with us. We’d be happy to help you get started!
Or if you’re still researching how to improve your processes, check out our No-Code Automation Guide for Law Firms.