In the heat of the game, the deal-maker with the right information can gain millions. Experienced private equity managers, CEOs and CFOs with several acquisitions under their belts know the importance of the right information at the right time. A clever investment banker adds value in acquisition negotiations, but without the right information he is useless.
Organisation of information is crucial for acquisitions
Investment bankers and corporate finance advisers who are engaged to guide an acquisition process are strong proponents of good preparation of the documentation prior to the actual negotiations. They frequently play a crucial role in the negotiations and the valuation of companies. Without the right information, they are exposed to the risk that their clients will lose millions due to an incorrect valuation. This is bad for the client and also for the investment banker.
“For the managers of the companies that come up for sale, it is also often a good thing if a start is made on collecting and organising the information needed for a takeover at an early stage,” says Luc van Daele, MD of legal service provider Legadex. He notes that in acquisitions, the financial, tax, HR, legal and sales departments of target companies are still being overwhelmed by the amount of information and documentation that has to be collected in a short space of time. In this ‘pressure cooker’ atmosphere the permanent employees are flooded with questions, meaning that the daily conduct of the business comes to a halt.
“If you start in good time, the right information can be collected in phases and the burden on the internal organisation is not material,” says Van Daele. A timely start also contributes to the overall quality of the information and documentation, and therefore also the deal process. “A carefully structured process includes the right checks and balances. Ultimately, this benefits both the seller and the buyer. The negotiations can be conducted more professionally and there is less chance of misunderstandings or confusion. The chance of subsequent claims due to a skeleton in the cupboard is also less if there is proper preparation.”
Faster acquisition negotiations
According to Legadex co-founder Van Daele, whose former positions include Head of Legal at the Endemol media group, careful structuring of the information can also save buyers and sellers a lot of money. “If the information is good, the acquisition negotiations can usually proceed faster, since there is no confusion regarding the facts. This means that investors and businesses not only save their own time, but also unnecessary time spent by expensive advisers.”
Setting up a data room often produces surprises for a business. “In the takeover process, people are forced to look at their own business critically and it often becomes clear that important information is missing and there are hitches in internal working processes.” According to Van Daele, the resulting insights can be useful for the future of the business. Nevertheless, the adviser sees that much of the knowledge and experience acquired during the M&A process is then subsequently lost. “You often see that the attention to and focus on improvement, in any case in the legal sphere, disappears as soon as a business passes into other hands. Take an area such as contract management. In the preparation of the data room, it often turns out that businesses have little insight regarding their own contracts and agreements. This discovery and the resulting momentum can then be very effectively used to improve the company’s contract management. The contracts that have been recognised due to the efforts needed to create the data room can be put into a proper system that can then be properly updated. The costs of organising everything for the future in one go are limited this way. Unfortunately, this momentum is frequently not used. A process such as an acquisition is a unique opportunity to make qualitative improvements.” “If companies keep their core documentation in order after the merger, this can continue to add value to the company.”
Innovative software for live information
Van Daele expects businesses to place additional emphasis on up-to-date and comprehensible information in future. “The days when we used to collect all the important information within a group once a year have gone. Businesses are increasingly moving towards the ideal that live and important information can be shared and accessed by internal and external stakeholders at all times. Properly secured of course, and based on clear working processes. This information comes from one and the same source and is usable for various purposes: operational, legal, financial, transaction-related or project-related.” According to the former General Counsel, many businesses are only just beginning to see the possibilities. However, also due to the increasingly innovative software that is becoming available, many are moving in the right direction.
For the people at Legadex, there is still enough work to be done to change the thinking of companies and M&A professionals. The team of corporate lawyers and paralegals at Legadex is a partner of the M&A Community for a good reason. They are showing in practice that businesses and deal-makers can deliver better work with well-thought-out working processes and the use of legal software. Legadex offers three types of legal services. Firstly, the flexible deployment of experienced paralegals and corporate lawyers. Secondly, consulting and implementation in the design of legal software for legal entity management, contract management, legal workflow, project platforms and big data analysis. Thirdly, Legadex has a leading position in the Benelux countries in the design of smart virtual data rooms and DD preparation for mergers and acquisitions, reorganisations and refinancing. Legadex regularly organises round tables and seminars at which the members of the M&A Community are most welcome. Interested parties should contact Luc van Daele or Hans-Martijn Roos.