With more than 3,000 deals valued at over $400 billion and payments over $180 billion, we’ve made a business out of constant innovation. Avoid M&A payment pitfalls by learning what the top six issues are that cause delays.
- Traditional paying agents are prone to cumbersome outdated processes and can take many days (even weeks) to distribute funds.
- When there are questions on a letter of transmittal (LOT), the process with traditional paying agents to resolve them is very slow and can involve multiple follow up questions to the deal parties.
2. Stock Certificates and Paper Closings
- 20th Century process still dominates the market.
- Under UCC § 8-207, buyers can rely on company cap table in a merger for making payments–no need to collect certificates.
- Use of an online LOT platform is far superior–much faster, virtually eliminates mistakes (“is that a 4 or 9?”).
3. Compensation Payments
- Traditional paying agents don’t pay employee optionholders, MIP’s or bonus participants–buyers usually have do it.
- Buyers have to keep track of hundreds or thousands of payees who may receive post-closing payments, even if no longer employees, at an additional vendor cost.
- Tax reporting for compensation payments is complicated and time consuming.
4. Administrative Fees and Bad Service
- Most banks charge excessive, non-negotiable, upfront and annual fees.
- Service levels at large banks often leave a lot to be desired.
- Banks typically work bank hours, and not M&A hours.
5. Escrow Agreement Drafting
Account for post-closing payments, escrow releases and tax reporting
- Ensure the term and termination provisions of the paying agent agreement take into account all payments.
- Bundle payments and escrow services with one provider for a smoother process.
- Address any deal-specific tax matters such as dividends, interest, sale of partnership interest, compensation payments, IRS Section 1446, and other “miscellaneous” categories.
6. Know Your Customer (KYC)
- For traditional banks, KYC is determined for the entirety of the bank, so excess information is collected unnecessarily, which adds time to their lengthy process.
- Find a paying agent whose KYC process is catered to M&A and specific entity types.