M&A closings don’t always go as planned, and in some cases can be considered coordinated chaos. Parties often work around the clock in hopes of meeting the infamous wire deadline, typically resolving final issues on the day of closing.
Once handled in an archaic “round-table” fashion, and sometimes still, the closing process lags behind technological advances. In a sense, closings remain round-table, except the table is electronic and extends over lines of communication. However, even closings that use electronic means still require a verbal or written confirmation to release funds which, for some reason, seems outdated.
As round-table closings evolved to telecommunicated closings, the current method will also evolve. Deal closings will eventually be streamlined through the use of smart contracts. A smart contract is similar to a written contract; each party has its set of obligations, except with smart contracts, the obligations are written in computer code. Smart contracts utilize blockchain technology—a decentralized ledger—and are self-executing, thereby eliminating the need for any additional confirmation to wire funds.
Applying smart contracts to real world practice, they would allow parties to codify the series of closing conditions. Each party would indicate its satisfaction of each condition unilaterally, without the need for individualized communication to the other party. Once all closing conditions are satisfied, the smart contract would self-execute and immediately wire funds to the receiving parties.
Blockchain technology continues to gain momentum and its applications are being recognized in various industries. The above example, although simplified, shows that blockchain technology has a place in M&A as well and likely all across the legal industry.
*This article also appears in Crain’s Cleveland Business.
Greg Watkins is an associate at Walter Haverfield who focuses his practice on corporate transactions and blockchain technology. He can be reached at 216-928-2917 or at email@example.com.
Ted Motheral is a partner at Walter Haverfield who focuses his practice on corporate transactions, mergers and acquisitions, private debt and equity financing. He can be reached at 216-928-2967 or at firstname.lastname@example.org.