08/05/2020

Overcoming M&A Due Diligence Hurdles in "New Normal" Transactions

While most companies are adapting to the “new normal” that COVID-19 has forced upon us, there are still many challenges for businesses to overcome, particularly the way we now conduct due diligence in M&A deals. We outline below a few of the issues companies now face.

DOCUMENT PRODUCTION

Hurdle: Today’s M&A transactions often require that companies provide their documents in an online data room. But not all companies have transitioned to an entirely digital format. Employees forced to work from their dining room tables may not have access to original documents located at the office.

Overcoming the Hurdle: If safe access to documents is available, companies should designate a few key employees to retrieve hard copies and digitize records, following a set schedule and safety policies set by the company. If safe access cannot be arranged, companies may have to make the difficult decision to postpone the transaction.

SECURITY AND PRIVACY CONCERNS

Hurdle: When all data sharing is done online without any in-person diligence visits, companies are disclosing vast amounts of information using different platforms that do not always have privacy and security as a priority.

Overcoming the Hurdle: Choosing a single platform for document production is highly advisable. Deal lawyers often face competing demands for document review, where each side of an M&A deal prefers a different platform preference for document production—Google Drive, Sharefile, Dropbox, Intralinks, or some other internal file sharing program. Keeping all documents in one platform, where both sides have continual access and visibility to document production, is absolutely recommended.

Confirm all relevant data security protections for the file sharing service selected. Data privacy breaches can lead to significant liability and potential breaches of nondisclosure agreements. Research and confirmation of security capabilities on the front end is critical.

Companies should also consider encryption of any shared material in the off chance such information finds its way to an unauthorized party. Additionally, redaction of sensitive or unsharable information adds another layer of security and protection to sensitive documents.

Even though it may seem simple, implementing checklists and document production and tracking spreadsheets is extremely valuable when sharing sensitive documents and information.

IN-PERSON INTERACTIONS

Hurdle: Travel restrictions, stay-at-home orders, and social distancing have made on-site document review and site visits frustrating, impractical, or even impossible.

Developing relationships and rapport are crucial to any business transaction. Like the challenges involved with on-site visits, in-person meetings between company executives are low on the priority list when weighing health risks and complying with company safety policies.

Overcoming the Hurdles:
Make the Most of Meetings:
In this new normal, with limited human interaction, building relationships and rapport with other professionals in your market can often make or break the right deal for your company. Many professionals find it difficult to sense “tone” solely through digital correspondence. Possible ways to address this include:

  • Virtual meeting options. While negotiating any deal, companies should consider implementing a standing meeting with the other side to make up for in-person interactions.
  • A few in-person meetings. Companies should consider whether one or two of their respective leaders can meet in person, at least once or twice, during the course of the negotiations. In some situations, travel by car and socially-distanced meetings (even outdoors) may be feasible.
  • Limited off-hours site visits. When a plant or facility visit is an absolute must, consider whether equipment and other physical assets can be viewed by a single person with few or no other people present to allow for due diligence without risk of virus exposure.

Keep Deal Specific Teams Small and Consistent

  • One way to establish and maintain trust despite virtual-only interactions is to keep the core transactional team consistent. When clients know from whom to expect communication, they are much more likely to respond quickly. Clearly introduce new parties entering the transactional communications and provide ways to make everyone feel informed and comfortable. A kickoff and introductory meeting (particularly a meeting done by video conferencing) can be critical in establishing a teamwork-oriented, collaborative approach.

Despite changes to many of our normal ways of doing business due to the pandemic, there is no reason to panic. Companies need to stick to the basics, follow policies and procedures, nimbly adapt to any temporary or permanent changes, and keep the channels of communication open. While M&A due diligence may look different, there are still transactional opportunities and plenty of ways to adjust and succeed in a virtual environment.

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