Merger and acquisition events can present significant challenges for legal, legal operations, and contract management professionals. Questions about contractual risk and process before, during, and after M&A activity often do not have clear cut answers. This post will discuss 3 reasons why contract management software is an essential tool for companies going through these types of transactions.
Before a merger or acquisition, companies perform the necessary research to understand the details of the deal. It's not uncommon parties on either side to have to summarize a company's recurring revenue stream documented in multi-year contracts, the number of contracts containing a specific clause that presents risk to a new buyer, the percentage of contracts in (or out of) compliance with federal regulations, and the list goes on.
Having a dedicated contract management software application can make the task of summarizing your contractual positions to potential business partners quite easy. Reporting and data analytics tools, prevalent in today's more sophisticated contract management packages, are a good fit for these tasks.
For purposes of sharing highly sensitive data and contracts, most higher-end solutions have role and user-based security, allowing even just one individual access to a document, record, or audit trail.
It's important to note you need to have the contract management solution operational before an M & A event for it to be of any value.
After the Transaction
Contract management software becomes even more critical after an M&A.
You know how difficult it is to manage your current contracts to keep them up to date and in compliance. When you add hundreds if not thousands of "new" contracts to that list, the process can become incredibly complex. You can easily violate a contract simply because your personnel are overwhelmed by the transition. Sadly, your vendors and clients aren't likely to accept that situation as an excuse.
In an ideal scenario, your original contracts and those resulting from the merger or acquisition are migrated into one system following the M&A event.
There are three immediate benefits to this:
- Contracts are available to any authorized person who needs to see them.
- Alerts for expirations, renewals, obligations, and other milestones will keep you on track with clients, vendors, business partners, etc.
- Your data will be available for reporting and analysis.
Enforcing Your Process
Perhaps the most important benefit to having a dedicated system in place following a merger or acquisition is providing the ability to control and enforce your contract management processes across a large organization.
Let's say your company grows by 1000 employees following an acquisition. These employees may be used to using nonapproved contract templates they have saved on their desktop. This can put you at risk in the new post-acquisition world.
Contract management solutions often provide self-service portals offering a guided experience to employees who need to interact with the legal or contracts team. The most common use case for such portals allows employees to request a contract after supplying the required information. They are provided the approved contract, tailored by the software to their specific request. This process is governed by business rules set up beforehand to enforce your specific processes.
In short, contract management software eases the process of M&A events, before and after the transaction takes place.