How to Close M&A Transactions Virtually?

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Companies are increasingly playing the main role in the largest M&A deals. The introduction of “digital” affects the market itself – the speed, transparency of processes, and ultimately.

The System of Transactions in M&A

M&A companies can be focused on improving production, financing, research and development, and entering new markets for sales and raw materials. As a result, systematizing all of the above motives underlying the decision on M&A, it is possible to draw up a general scheme. The feature inherent in the domestic market is the presence of a large number of mergers and acquisitions, which are not horizontal or vertical but are the result of the buyer’s desire to diversify and enter new markets.

Resources exist independently of the enterprise (if tomorrow it disappears, its resources will still remain), and under a favorable coincidence, they can be withdrawn from the acquired company and built into the main business model:

  • That is, such transactions are made according to the principle of “strengthening our business model”. But this will not work with the rest of the business model of the acquired company. 
  • The profit formula and business processes do not exist separately from the organization and, as a rule, “die” with it. But you can buy another firm, let it continue to operate independently according to its own business model or use its model as the basis for the transformation and growth of the parent company.

Other types of virtual transactions that can be used for M&A purposes are the cost of reproduction and the cost of replacement. They view a business as a collection of assets belonging to it, which, if necessary, can be sold separately. 

Contractual Clauses of M&A Transaction Documents Virtually

Due to the global pandemic and potential risks in business development, the parties to the transactions carefully agree on the contractual provisions governing the conditions and consequences of material adverse changes, as well as any changes in ordinary commercial activities (ordinary course of business) and force majeure. First of all, speaking about the valuation of any asset, it is necessary to determine what the purpose of the valuation is. And, based on the intended goal, what type of value is to be determined. In our case, the target is an M&A deal.

In addition, the parties should carefully evaluate the closing time and the long stop date of the M&A transaction, taking into account the quarantine restrictions. In particular, as we have already mentioned, such restrictions can significantly affect not only the fulfillment of preconditions for the completion of the transaction (for example, obtaining regulatory approvals) but also the closing of the transaction itself (for example, in a situation where a non-resident party decides to personally attend at the close and sign all documents in front of a notary).

In addition, you should pay attention to the timing of data room m&a in the event of the occurrence of risks discovered after the closure of the M&A transaction, as well as threshold indicators of liability for violation of guarantees of the parties to the transaction. In particular, buyers are increasingly trying to lengthen the seller’s lead times, as well as to increase the minimum thresholds for individual claims. The more fragments you put together, the more complete and accurate a picture of reality you will get. By exchanging data and cross-referencing different streams of information to analyze them, a higher-order problem can be solved.

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