Blog Post

Effective M&A Post Closing Contract Management | Exigent

June 12, 2017

It’s no surprise that many acquisitions fail to deliver full value because of poor post-closing integration of the acquiring and target businesses. The aim of this article is not to deal with all aspects of post-closing integration but rather to focus on one particular challenging area, namely contract management integration.

The following considerations, will assist General Counsels (GCs) or contracts functions to better manage risk and extract maximum value from the contract management integration process within the first 100 days after the deal has closed by reducing spend and revenue leakage.

1. It is critical that an integration team is established along with a team charter identifying members, interdependencies, risks/issues and integration objectives. These objectives must focus on people, processes, systems and legal/risk/organisational culture.

2. Do a current state assessment across both legal/contracts departments in line with the objectives listed in the integration team charter and create an integration plan for the first 100 days which should also provide for a Day 1 readiness review.

3. In addition to the integration plan, a change management plan should also be compiled with clear deliverables and milestones.

4. One of the best methods to manage contract management risk is to have a contracting standard or framework in place for your organisation. If this standard is principle based, as opposed to rule based, it has the benefit of providing guidance that can be applied across jurisdictions to the infinite variations in circumstances that arise in practice and can cope with rapid changes in the business environment. It also encourages responsibility and the exercise of professional judgement by lawyers within the organisation. The roll-out and training associated with this will form a key component of your change management plan.

5. Going hand-in-hand with the principle based contracting standard is determining how deviations or exceptions to the standard will be dealt with in the acquired business. In order to have visibility of the risk and to monitor implementation, it’s recommended that the new business be looped into the existing exception approval process in the acquiring organisation. In order not to over-burden the team, the approval requirement can be limited to the risks of most concern to legal team of the acquiring business.

6. If you are in an industry where responding to Request For Proposals (RFPs) is part of the everyday business landscape you will need to consider how you will manage responses submitted prior to closing but only awarded after the deal has closed. The risks associated with the opportunity may not have been dealt with adequately by the target which could result in risk not normally accepted by the acquiring organisation. This risk will have to be communicated to the senior leadership and appropriately managed.

7. During the due diligence the risk profiles of the target’s current agreements would have been identified. As with the RFP risks identified above, managing these risks has to form part of your integration plan especially if they are beyond the norm for the acquiring business.

8. If the two businesses operate within the same industry, then there needs to be an audit of all master agreements. The objective of the audit is to identify any duplication and unfavourable risk profiles and commercial terms so that the M&As can be rationalised and renegotiated where possible. If appropriate, the general trading terms and conditions must be reviewed, standardised and rolled out across both businesses as part of the change management plan.

9. As part of the change management process, compile a Frequently Asked Questions (FAQ) document and circulate it to the legal departments and management teams of both organisations. The FAQ needs to cover a number of topics, be informative and provide management with the comfort that the legal team has a contracts integration plan in place that’s geared towards supporting value capture post-closing.

10. It may seem obvious, but the value of a key persons contact list along with a short description of their roles and responsibilities should not be underestimated. It will help facilitate communication between the integration team members themselves and between other key members of the legal and contracts teams in the respective organisations.

As mentioned this is by no means meant to cover all aspects of the integration process but if these suggestions are followed, the risk of value loss is greatly reduced.

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