Closing the Deal: Managing Complex Payment Mechanics and Fund Flows

Insights from our panel session hosted at the Legal500 Corporate and M&A Summit.

As a headline from the recent Legal Business Magazine Corporate and M&A summit, there was great optimism about the M&A market over 2024. With more dry powder in the market, cooling inflation and a growing appetite from PE to release assets after a slow 2023, many foresee an increase in deal volume over the next 12-months, particularly at mid-market.

The key question for legal advisors working on M&A is; how can they prepare for this uptick in deal volume and how can they ensure deals aren’t derailed by unnecessary risk and delay.?

Shieldpay hosted the panel session Closing the Deal: Managing Complex Payment Mechanics and Fund Flows which raised interesting questions about the challenges legal advisors face in M&A. Chris Lyes , Chief Commercial Officer, chaired the conversation between our esteemed panellists: Giles Chesher , Karri Vuori and Nick Atkins .

Below is a summary of some of the key themes to emerge from the discussion on the day, but let us know in the comments if there is more to contribute to this topic.

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Key themes covered:?

1. Aligning for success: bringing lawyers and payment providers into the conversation early

2. Simplifying complexity: large shareholder groups, international transactions and overcoming the intricacies of payment rails?

3. The pressures and risks facing legal teams

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Aligning for success: bringing lawyers and payment providers into the conversation early

One of the things that came through loud and clear is that when it comes to deal making, involving legal advisors early is key to success. Having lawyers and payment providers in the process upstream helps ensure legal documents are drafted correctly at the outset.?

Giles Chesher was right to highlight that even small mistakes can cause significant costs in terms of time and resources. This is because, in a process as complex as a significant acquisition, making ‘one little change’ to a document can actually mean amending tens of documents. In terms of the numbers too, where large sums of money are in play, even a seemingly insignificant rounding error can cause delays or, in a worst case scenario, void the deal. Legal practitioners are detail oriented and involving them early means problems can be identified and rectified before they become significant.?

Likewise, it’s crucial at this early stage to ensure a payment mechanism is decided upon. As a corporate advisor with significant experience in this space, Karri Vuori made the point that this can give parties the certainty they need and ensure whichever solution is chosen is strategically aligned with the needs of the client and can be factored into the pricing and funds flow upfront.?

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Simplifying complexity: large shareholder groups, international transactions and overcoming the intricacies of payment rails

A second theme to emerge was on the operational side of delivering a successful M&A process. The challenge of managing large payouts comes down to the time and resources needed to complete KYC and other required due diligence on every payee. These checks are often manually undertaken, leaving them prone to error.?

Payment mechanisms are also a challenge here. Lawyers are not payment experts and are not always best equipped to anticipate and manage issues that might come up through the payment process, such as transaction fees and working across different time zones and currencies.?

Even the fairly straightforward question of bank opening hours can present difficulties in terms of funds arriving with payees at the right time. High volumes of transactional parties all receiving different payment values at different times can make fund flows convoluted, and lead to delays which can compromise the deal. Nick Atkins spoke to this point and shared his experience of one client questioning when the deal officially closed if funds arrived at different times and even on different days.

These challenges can also undermine confidence in an already fraught business situation and risk the relationships built on both sides of the deal, which again, can be costly financially and in terms of reputation.?

The pressures and risks facing legal teams

The third major theme to come out of our panel session was about the pressure that managing M&A deals puts lawyers under. Oftentimes lawyers are performing duties that go beyond what would normally be expected of a legal service while aiming to get a deal done on time and to client expectations. This means long days and late nights, oftentimes racking up unbillable hours.?

Alongside this, the combination of managing the communications between so many stakeholders, working between different documents and spreadsheets, and being under the watchful eye of tight regulatory scrutiny, brings with it an element of risk. We’re all human after all, and can make mistakes, especially when under extreme time pressures. In this particular scenario however, a mistake could be hugely detrimental to an individual lawyer, and to their wider firm.?

While there’s a lot here, one thing that does come through is that the complexity inherent in M&A, and the large amount of manual and non-legal work involved, is a source of risk and pain for the firms involved. We’re seeing more partnerships with escrow providers and paying agent services to support this work and mitigate these transactional risks. A clear conclusion of this discussion was that the trend of working with a regulated, trusted payments partner is only likely to continue (especially in light of potential moves by the SRA, but that’s for another post).

The point was summed up well by Giles, when he said:

“Paying agents are going to become as ubiquitous as data-rooms for M&A deals”.

We’ll be exploring some of these themes in greater depth in subsequent posts. Please leave your comments below and let us hear your experience of delivering M&A deals.

Read more insights from the Shieldpay team on our blog.

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