M&A transactions: What to consider when working with a payments partner

ShieldpayBy Legal Futures Associate Shieldpay

Robin Bates takes a look at the current state of the M&A market, explains why more law firms are working with a payments provider and what to think about when managing the transaction.

While M&A activity plummeted in 2020, 2021 more than made up for it. By October, it was already a record-breaking year for M&A activity. The first nine months of the year were the strongest since records began, and by the end of the year, the total value of deals surpassed $5.8tn.

Now into 2022, there is no end in sight; it looks as though deal volume will continue at these levels for some time.

To handle the unceasing surge of activity, attitudes are changing towards how law firms manage M&A deals. Lawyers have realised that they need greater efficiencies in their processes to address the challenges they are facing, both externally – from regulators, clients and deal requirements – and internally – from pressures to bill more hours and provide higher service levels. With so many moving parts and not enough resource, legal teams must rethink their practices to effectively manage stakeholder needs and expectations.

An easy place to start, and one that will see immediate results, is right at the end of the deal lifecycle: payments . Law firms have traditionally provided payment services through their client account functions, relying on their finance teams to process substantial numbers of settlement payments. However, between the regulatory and administrative burden, and the maxed-out workloads of staff, law firms can no longer afford to continue in this way.

Now, a new precedent is being set. Law firms are moving away from using client accounts to facilitate large transactions, turning instead to specialist payments providers to deliver the work. This trend is being led by US and Magic Circle firms to reduce risk and take the weight off the shoulders of overstretched lawyers.

A paying agent or escrow service provider gives every party involved in a transaction complete peace of mind. Buyer, seller and all representatives can focus on getting the documentation in order while the payments partner focuses on getting the funds to and from the right places at the right times.

When it comes to handling the completion of a complex transaction, there are several aspects to consider when choosing a payments provider. Here are the key elements to think about for your M&A transactions in the coming year:

  1. Complexities of cashflow

M&A transactions are rarely simple. There could be multiple payments in from numerous sources, with debt involved, and on the other side, shareholders may be located across the world and even require staggered or deferred payments depending on the agreed deal terms.

No matter the intricacies of the deal, a specialist payments provider can do the work and prevent delays to the transaction. The payments team will work through the sale agreement to create a payments flow and timeline to effectively manage and coordinate stakeholders, complete the due diligence checks and move the money in and out of the account at the set dates.

  1. Bringing paying agent and escrow together

The contractual arrangements of the deal will inform what transactions are required and under which conditions. In some instances, there are multiple forms of payment, relying on an escrow arrangement to hold a percentage of the funds for a set period of time and a paying agent to disburse other set amounts. While there are payment providers that specialise in either service, working with one partner to carry out every aspect of the transaction will enable a more coordinated and orderly completion.

The aim of working with a payments partner like Shieldpay is to simplify and streamline the process, reducing cost, time and workload. The ability to have one team to communicate with, one source of truth and one contract to sign will reduce what could otherwise be immensely complicated. Working with a team who knows the deal through and through is invaluable for both the legal teams and their clients.

  1. A smooth and fast payments process

In recent years, the average time to close an M&A deal has risen more than 30%. With such high volumes of work to be carried out over the next 12-18 months, legal teams need to aim to reduce timelines and bring in extra support to assist them to close the deal rapidly.

To push those deals over the line quicker, we have seen lawyers reach out to us earlier in the deal cycle. Whilst settlement payments have often been an afterthought in the final stages of the process, it is becoming apparent that there needs to be more consideration of the closing mechanisms ahead of time. By planning payment processes earlier and working closely with the chosen payments provider, law firms can inform all parties involved of the financial processes and conduct the necessary due diligence in advance, enabling a slicker closure.

  1. Fees

The charges for paying agent and escrow services do differ between payments providers. It is important to be aware of what the fees will be for the different aspects of the transaction. For some, there will be individual charges for each service. For example, on-boarding will have one cost, KYC another and there could be a fee for each payment made.

At Shieldpay, we offer one upfront inclusive fee, taking into consideration all of the transactional needs, such as number of payments in and out, the jurisdictions involved and length of time the funds will be held in account. This means that there are no hidden costs, giving your clients complete transparency of pricing for the service.

  1. Due diligence

It is common practice to conduct due diligence and verification checks on each party in the transaction before any payments are made. These checks securitise the transaction by confirming the identities of all involved and flagging any concerns in making the payments to or from the individuals or organisations. Anti-money laundering (AML) and know your client (KYC) are standardised checks that many payments companies run to prevent illegal activity.

For any FCA regulated payments institutions, conducting due diligence is imperative. The regulator requires companies to take all steps necessary to securitise and safeguard transactions. Having this layer of safety, supervised by a regulatory body, protects all parties and gives them complete peace of mind.

We take a streamlined approach by reducing the number of documents required to carry out this process. With the name of the company, jurisdiction and registration number, the Shieldpay team can gather publicly available information and give parties a definitive, shortened list of information to complete the checks and save all parties much needed time.


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