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Contracts, Mergers & Acquisitions

October 17, 2011
I cannot claim any deep expertise in mergers and acquisitions, but it is clearly another important field for commercial and contract management. Today’s economic conditions are likely to prompt a growing volume of M&A activity and the ability to undertake effective valuations will be key in determining the winners and the losers.
When it comes to M&A, a company’s trading relationships (as evidenced by its contracts) are often the primary asset. Yet my limited investigation in this area suggests that the rigor of many M&A professionals in this regard is quite low. Indeed, in discussions with AMAA, they struggled to identify any members who really have expertise in this area.
I suspect the issue is not only whether the relevant contracts can be found, but also how to undertake a realistic assessment of their value (and hidden risks). In this context, the complexity of discovery is perhaps a major reason that adequate assessment is not made. So there are two things that are important:
  1. an ability to simplify the discovery process; and
  2. The fact that if a company has already built a robust contract management system, it reduces the risk for a merger or acquisition partner and therefore should make the business more attractive (unless of course there are a lot of bad contracts!).
In this context, I was impressed by a recent demo from Seal Software and a subsequent blog that outlines the value of automation for M&A activity. For those who are weighing the benefits of automation, I suggest this is another important area to add to the list.
One Comment
  1. John Tracy permalink

    Having been involved in quite a few on both the buying and selling side, I can tell you that having a
    a good contracts system that can provide a current, accurate copy of the contracts and all the changes to them is critical.

    In an acquisition there are many things a prospective buyer needs to review and the selling company needs to provide. All those things need to be pulled to create a data room for a prospective buyer to review as part of their due diligence determining the valuation. It would involve purchase, sales and all other agreements that were used by the business involved.

    All those agreements also need to be redacted to strike out confidential information such as the supplier or customer names or prices charged. Those documents are then usually converted into
    pdf formats and are placed in the data room. In the past those documents would be physically collected into a room where perspective buyers could view them. More recently they get placed in an electronic data room where access is provided to the perspective buyers to view the documents electronically.

    The activity of the collecting, redacting and placing the information into the data room is a major activity. It also needs to be managed in high confidential manner so that the activity is not known to the employees or disclosed to others that could have an impact on the purchase or sale. The only way that can be done quickly is by having strong and accurate contract management systems and other tools to identify what contracts are involved with that business for you to gather that you need. For example, you need cost centers of the business(s) involved to pull purchase order information that would be linked to contract numbers.

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