By Legal Futures Associate Shieldpay
The M&A environment may have been turbulent in the wake of the pandemic, but it has bounced back and 2021 has seen a profound resurgence in activity. By August of this year, the global market had surpassed the full-year tally of 2020. However, this increase in volume is not easy to manage and the average time to close an M&A deal has risen more than 30% in the last decade. Timelines are lengthening due to increased complexity in the deal-making environment. A key factor of this for the UK has been emerging regulatory concerns, mostly stemming from the changes to laws and regulations brought about by Brexit.
Higher volumes of deals, increased complexities and lengthening timelines are straining all parties involved in an M&A deal and bringing concerns around risk to new heights. Despite the many moving parts and the pressures throughout a deal, there can be some relief in the closing transaction. Firms using a trusted payment solution, like Shieldpay, are enabling their deals to be completed more quickly and securely and with total peace of mind.
Over the past 18 months, we’ve worked on numerous M&A transactions, offering our clients unrivalled speed and flexibility to close the deal on time. To give a better understanding of the end-to-end process, I’m going to run through a recent deal we managed the payments for, explaining each of the six key stages involved.
Discovery: understanding the deal
Every deal has its own complexities and requires flexibility in how payments are managed. As a regulated payments company, each deal we work on needs to be fully scoped to understand quantum and movement of funds (source(s) and destination(s)) as well as whether or not we are required to hold funds for an extended period of time. In a recent deal we assisted on (we will refer to it as Project Pumba), a company was being acquired, and the shareholders needed to be paid their due proceeds.
The funds (approx. £650m) came from five different sources totalling and had to be paid out to nearly almost 200 individuals and six corporate entities, spread internationally across 14 different jurisdictions.
Not only that, a proportion of funds due to all those payees were held back under provisions in the SPA for a 3 month escrow, thus utilising both our Paying Agent and Escrow solutions.
Introductions and communications: meet the key stakeholders, early!
In many M&A deals, the logistics of paying of the consideration is somewhat of an afterthought; the commercial deal is negotiated and agreed, with parties often scrambling at the 11th hour to contend with payment mechanics. This can jeopardise deal closing timelines, especially where greater payment complexities exist. These complexities can include a large number of payees, perhaps across multiple jurisdictions and with different FX requirements. To avoid these headaches for dealmakers and stakeholders, increasingly, we are becoming involved in the planning stage of the transaction to reduce the risk of delay to the transaction.
With Project Pumba, Shieldpay was introduced to the transaction and its deal teams months ahead of completion.
This allowed Nirvana to be achieved (in the context of an M&A transaction!): peace of mind. With plenty of time for Paying Agent and Escrow Agent contract formalities to be addressed and KYC collation and processing, we were able to also facilitate a last-minute request for FX services, which we would not otherwise have been able to provide.
KYC: completing due diligence checks
Shieldpay rests on the principles of providing trust, transparency and security in payments. As a regulated payments provider, we are meticulous in our verification process. The due diligence checks we conduct are critical to the solutions we offer, ensuring the right people are paid at the right time. For every transaction we are involved in, all parties must be verified before we can proceed with payment.
For Project Pumba, circa 200 payees – comprising individuals and corporates – had to pass our verification checks. Inevitably, with such a large number of payees, not all document requests will be satisfied first time around, so the benefit of time through early involvement in the transaction was essential to the timely disbursement of payments upon completion.
A key part of our offering is the use of standardised contracts which can be amended to reflect the specific terms of each transaction. Our contracts are widely accepted across the industry from Magic to Silver circle firms and beyond. This further streamlines our onboarding process ensuring that we can meet tight deadlines where required.
In strict compliance with FCA regulation, Shieldpay operates various designated Client Monies accounts with tier-one banks that are fully segregated, safeguarded and insolvency protected to ensure maximum peace of mind for clients.
For Project Pumba, we received a total of five payments of the funds which ultimately needed to be distributed or held in escrow. For the escrow component of the deal, we were contracted to hold a portion of funds for up to 3-months, at which point, the money would be paid out, so long as the terms of the agreement (reflected within the contract) were met.
Funds go out
Each transaction has different and specific release conditions which Shieldpay adheres to. Authorisation for payments by Shieldpay can be provided by the client in either traditional form by submitting a duly signed Release Notice, or via digital authorisation by the agreed signatories using our bespoke Shieldpay online platform. If required, our contracts can also facilitate milestone payments at pre-determined dates, i.e. automated payments that don’t require specific payment instructions to be served on Shieldpay prior to payment.
We really enjoyed working on Project Pumba and our client feedback highlights our successful work on this deal:
“I would want to really underline that I found Shieldpay to be an excellent partner from start to finish. The team was both extremely responsive and above all client focused. We threw them a few curve balls, like asking them to accommodate USD payments for some key individuals at the last moment, and they responded positively.
So, all in all, a really positive experience. And of course, above all, the process worked, the payments were handled efficiently and were processed in good time.”
Shieldpay’s Paying Agent and Escrow services enable law firms and their clients to complete their M&A transactions with speed, ease and security. Get in touch to find out more.