• Andrew Hawkins, CEO, UK & Europe at Shieldpay


• 20.02.2024 11:45 am
#Payments #cash

To complete a successful merger and acquisition (M&A) deal, legal teams must have a strong legal aptitude garnered from years of training and experience. However, there is an often overlooked additional responsibility: managing financial considerations. While not a centrepiece of their legal careers, coordinating transactional parties and overseeing the movement of funds can take up a significant amount of time. From managing diverse payments and navigating through different currencies, to handling intricate payment schedules - lawyers are really up against it. While in-house finance teams usually step in to support these transactions with the use of a client account, these days are coming to an end and lawyers must now navigate this intricate landscape strategically. 

As the M&A landscape evolves within the current economic climate, the stark reality of prolonged deal durations becomes evident. According to recent findings from a Gartner report, the average time required to finalise an M&A deal has significantly increased - a 30% increase from a decade ago, now taking around 38 days. The elongated closing times have taken a toll on the market, as well as the legal teams running point on the deals. When a deal is in motion, lawyers need to be able to sprint to the finish line, which can be hard when working with slow-paced legacy banking partners and in-house finance teams. To support these deals and provide the agility, pace, and security legal teams need for the transactions, new technology-led payment players are emerging.

These payment processors are fast becoming the unsung heroes of the M&A landscape with the ability to simplify cash flow management. Their role allows M&A professionals to direct their focus to the critical legal aspects of the deal-making process. But what does this transformation entail, and how exactly are these specialised payment partners redefining the M&A landscape?

Simplifying Funds for Businesses

One of the most significant challenges in M&A transactions is managing cash flow effectively. With payments coming from various sources in different currencies and often following complex schedules, traditional financial management methods fall short. This is where specialised payment partners step in, armed with cutting-edge technology that can address the complexities of cash flow in M&A transactions.

That said, digital escrow services are a game-changer for M&A deals. These services act as intermediaries, holding funds in a secure account until specific conditions are met, ensuring that all parties involved in the transaction are protected. This not only makes the payment process more efficient, but also provides a level of security and transparency that traditional methods currently lack.

Paying agent technology complements digital escrow services by facilitating the disbursement of funds in multiple currencies to various stakeholders. These technologies can automatically convert and distribute payments according to predefined rules, thereby not only eliminating the need for manual intervention, but also reducing the risk of errors.

Cutting the Deal Time

With M&A deals, time is money, and as touched on earlier, the average deal time has been steadily climbing in recent years. This deal drag can be attributed to the increasing complexity of transactions, including regulatory hurdles and due diligence processes. 

WTW’s recent Q1 2023 report found that the median time to close deals in this quarter has been the slowest since 2008, with 71% of all deals taking at least 70 days to complete. Legal teams find themselves bogged down by administrative tasks, leaving less time for strategic planning and negotiations.

With digital escrow services and paying agent technology, legal teams can automate and streamline many of the time-consuming tasks associated with M&A transactions. For instance, escrow services can hold funds while regulatory approvals are sought, allowing the deal to progress without the need to wait for each payment milestone to be manually executed. 

These technologies provide real-time visibility into payment status and transaction progress, enabling legal teams to track the deal's status more effectively. This allows for better decision-making and more efficient allocation of resources, which in turn contributes to a shorter deal timeline.

Streamlining Due Diligence

Due diligence is one of the most critical aspects of any M&A deal, ensuring that both parties have a clear understanding of the transaction's risks and rewards, though it's also one of the most complex and time-consuming parts of the process. Our research report highlighted that 42% of law professionals say the most time-intensive aspect of handling client funds and managing payments is due diligence (KYC/KYB) checks.

Both digital payment agents and escrow services shoulder the responsibility of conducting due diligence, tracking, and organising KYC information. The utilisation of automation tools ensures the efficient processing of these checks, while the prevalence of open banking facilitates swift verification of bank details. 

As well as saving time, this process will also add a layer of security that protects all parties and gives them peace of mind by creating a secure repository for all relevant documents and funds.

The Future with Payment Partners

The M&A landscape is changing as deal activity slows pace and transactions become more complex. However, specialised payment partners offering digital escrow and paying agent services are leading the transformation of cash flow management. By partnering with law firms, these technology-led providers embed agility into deal closure practices, streamlining and accelerating payment processes. 

Embracing technological innovations is essential for success, positioning businesses to thrive in a landscape where speed and efficiency are paramount.