When M&A Deals Create Hidden Costs, Put Them Online

When M&A Deals Create Hidden Costs, Put Them Online

In the course of making a deal, in-house counsel aspire to maximize profits and eliminate wasteful spending. Shareholder Representative Services Acquiom, a company that manages administrative needs for M&A deals, has identified some $5 billion per year that parties could save by working smarter.

According to a recent white paper issued by the company [PDF], slow payments, administrative hassles and poorly invested escrows all contribute to unnecessary costs. SRS Acquiom has developed its own solution—Acquiom Clearinghouse—that uses technology to save time and money during the M&A process.

One instance in which the white paper indicates there is opportunity for savings is in the speed of payout to shareholders when an M&A transaction is complete or escrow expires. SRS Acquiom’s data shows that the most common timeframe for paying out shareholders was around a week. Mark Vogel, co-CEO of SRS Acquiom, told CorpCounsel.com that in an era of nearly instant online money transfers, this doesn’t make sense. “If I can pay you something using PayPal and you get it in a matter of seconds, why does it take 6 to 7 days” to get money to shareholders, he asked.

By using an online process that digitizes letters of transmittal (LOT) and allows shareholders to e-sign for their payout, rather than sending paper letters back and forth through snail mail, Acquiom Clearinghouse gets over 80 percent of payment done on the day of closing. And in these cases time is, in fact, money. The online process also works to correct transcription errors that can happen when forms are filled out and data is transcribed manually.

Online administration of M&A is enabled by the fact that, although some don’t realize it, under the U.S. Uniform Commercial Code, it isn’t necessary in most instances for the M&A parties to collect paper stock certificates and mail them to each other. “The epiphany is that the UCC protects the buyer already even if the certificate is not delivered,” Vogel said.

The white paper also mentioned another source of inefficiency: escrow accounts, where SRS Acquiom estimates 10 percent of the transaction value is held for about 18 months following the deal. The paper states that it’s rare for companies to pay much attention to how escrow is invested, but using SRS Acquiom’s financial modeling that explains how escrow accounts behave in the marketplace, the company says it’s possible to achieve much higher yields.

Practice Area(s):