Facing M&A Cash Flow Challenges: Empowering Success with Payment Partners

Andrew Hawkins, CEO, UK & Europe, discusses M&A cash flow challenges and how working with a payments partner armed with digital escrow services and paying agent technology can enable firms to gain a competitive edge to optimise their process and close M&A deals faster.

----------------------------------------------------------------------

In the fast-paced world of mergers and acquisitions (M&A), the financial landscape is riddled with complexities. Multiple payments, varying currencies, and staggered or deferred payment schedules can turn a strategic business move into a financial labyrinth. The era in which in-house finance teams could bear this responsibility independently has come to an end.

M&A deals have typically proven to be a long and painful process to close. According to a Gartner report, the average time to close a deal is now 38 days, up 30% from 10 years ago. However,  specialised payment partners are now emerging as the unsung heroes of the M&A landscape, armed with unmatched expertise to simplify cash flow management and allow M&A lawyers to focus on the critical aspects of the deal. But what exactly does this look like?

Cash Flow Simplified

One of the most significant challenges in M&A transactions is managing cash flow effectively. With payments coming from various sources, in different currencies, and often following complex schedules, traditional financial management methods fall short. This is where specialised payment partners step in, armed with cutting-edge technology that can address the complexities of cash flow in M&A transactions.

That said, digital escrow services are a game-changer for M&A deals. These services act as intermediaries, holding funds in a secure account until specific conditions are met, ensuring that all parties involved in the transaction are protected. This not only streamlines the payment process and enhances efficiency but also adds a layer of indemnity, safeguarding against potential mistakes and offering a level of security and transparency that traditional methods currently lack.

Paying agent technology complements digital escrow services by facilitating the disbursement of funds in multiple currencies to various stakeholders. These technologies can automatically convert and distribute payments according to predefined rules, thereby not only eliminating the need for manual intervention, but also reducing the risk of errors.

Reducing Deal Time

With M&A deals, time is money, and as touched on earlier, the average deal time has been steadily climbing in recent years. This deal drag can be attributed to the increasing complexity of transactions, including regulatory hurdles and due diligence processes. 

WTW’s recent Q1 2023 report found that the median time to close deals in this quarter has been the slowest since 2008, with 71% of all deals taking at least 70 days to complete. Legal teams find themselves bogged down by administrative tasks, leaving less time for strategic planning and negotiations.

With digital escrow services and paying agent technology, legal teams can automate and streamline many of the time-consuming tasks associated with M&A transactions. For instance, escrow services can hold funds until key milestones are reached and regulatory approvals are secured, enabling the deal to progress seamlessly without the need for manual execution at each payment milestone. 

These technologies provide real-time visibility into payment status and transaction progress, enabling legal teams to track the deal’s status more effectively. This allows for better decision-making and more efficient allocation of resources, which in turn contributes to a shorter deal timeline.

Simplifying Compliance

Due diligence is one of the most critical aspects of any M&A deal, ensuring that both parties have a clear understanding of the transaction’s risks and rewards, though it’s also one of the most complex and time-consuming parts of the process. Our research report highlighted that 42% of law professionals say the most time-intensive aspect of handling client funds and managing payments is due diligence (KYC/KYB) checks.

Both digital payment agents and escrow services shoulder the responsibility of conducting due diligence, tracking, and organising KYC information. The utilisation of automation tools ensures the efficient processing of these checks, while the prevalence of open banking facilitates swift verification of bank details. 

As well as saving time, this process will also add a layer of security that protects all parties and gives them peace of mind by having access to a centralised platform for managing and overseeing the funds flow.

Moving Forward with Payment Partners

The complexities of cash flow management in M&A transactions are undeniable. However, specialised payment partners armed with digital escrow services and paying agent technology are transforming the landscape. 

As more organisations use payment partners, they will gain a competitive edge to optimise their process and close M&A deals faster. The M&A landscape continues to evolve, and embracing these technological innovations will become increasingly critical for success in this competitive arena.

----------------------------------------------------------------------