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m&a process
3 min read

Expose Risk in M&A Contracts and Commitments

Welcome back to the blog series on hidden contract risk!  We’re highlighting three risks and explaining how contract management software can help you expose and eliminate them. So far, we’ve gone over data privacy and pandemic-era risk. Be sure to check them out. Today, in the final post of the series, we’re diving into the risks associated with M&A contracts and commitments.

Risk Review: M&A Contracts and Commitments

M&A markets continue to sizzle with record levels of deal-making. Despite the flurry, value leakage from inefficient contracting remains a problem. Buyers must be aware of how target companies manage contractual exposure. To illustrate, undisciplined companies lose up to 40% annually on supplier contracts in some industries.

Legal teams must also be aware of buried language –like change of control provisions and non-assignment issues– that erode return. Consider: In due diligence, a buyer may agree to a deal based on the target company’s sales contracts. But what if existing customer contracts provide some entitlement, like Termination for Convenience? Legal teams must be able to scour contract data to uncover these entitlements.

Key Metrics for Legal Teams

Other clauses may include protections like a continuation of benefits or salary agreements. Legal needs to identify these to assess impacts when controlling interest changes. Forbes highlights other overlooked control change issues, including acceleration of indebtedness or liquidated damages provisions. 

More broadly, both buyers and sellers need confidence about what any contract includes–but a manual review is error-prone and time-consuming. Every byte of insight from analytics and automated, full-text search improves decision making and speeds closing.

If you want to leverage contract management software to respond faster to crises (and prevent future ones), contact LinkSquares today

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Alyssa Verzino is a Content Marketing Manager at LinkSquares.