10 Ways Merger and Acquisition Contracts Benefit From CLM

- Last Updated: Jan 16, 2025
- 15 min read
- Sirion
Introduction
Mergers and acquisitions (M&As) are messy affairs. You’re on quite the time crunch to measure contract risk, tally up obligations, and compare thousands of contract terms. That’s all while figuring out how to marry various systems and reach an agreement on the merger itself.
It’s countless hours of late nights, lengthy phone calls, and too many cups of coffee trying to make sure this investment will pay off for your business. Unfortunately, if you’re juggling all of the moving parts of an M&A manually, you’re all but guaranteed to burn out, extend timelines, and miss important contract details.
Only by leveraging AI-native contract lifecycle management solutions can you streamline contract review and realize the true value of combining your enterprise with another.
In this blog, we’ll go through some of the all-important benefits CLM offers in driving successful M&A deals.
Mergers and Acquisitions (M&A) – Definition
Mergers and acquisitions (M&A) refer to strategic business processes where companies combine (merger) or one company purchases another (acquisition) to enhance growth, gain a competitive edge, or achieve operational efficiencies. These transactions require careful planning and execution, particularly for managing M&A contracts, as they play a critical role in defining the terms of the deal and mitigating risks. Understanding M&A agreements and the contracting process is essential for ensuring smooth and successful integrations.
What is a Merger Clause?
A merger clause, often included in M&A agreements, states that the written agreement represents the complete understanding between the parties involved. It prevents any external oral or written communications from influencing the terms of the contract. This clause is vital in maintaining clarity and protecting parties from disputes over terms not explicitly outlined in the agreement.
What is an Acquisition Clause?
An acquisition clause outlines specific conditions related to the purchase of one company by another. It typically includes details on the transaction structure, purchase price, and timelines. Such clauses help define the parameters of the M&A acquisition process, ensuring that all parties involved have a clear understanding of their obligations and rights.
Acquisition vs. Merger: Key Differences
While acquisitions involve one company purchasing another, mergers occur when two companies combine to form a new entity. Acquisitions are often characterized by one party assuming control, whereas mergers are typically collaborative, with shared ownership. Understanding these differences is crucial in determining the appropriate M&A contracting approach for each scenario.
The Importance of Due Diligence for Merger and Acquisition Contracts
Smart business decisions are never made on a whim. You need to invest time and effort into intense due diligence to ensure things work out in your favor. That is especially true for mergers and acquisitions.
Before you even approach contract negotiations, consider the potential M&A’s legal, regulatory, environmental, operational, financial, and strategic fit. Missing even the slightest details can result in disaster down the line.
Proper due diligence ensures you definitively know the:
- Potential Risks and Liabilities — What is the target company’s financial position? Do you see any possible problems? Will you be able to fulfill their existing contract obligations, or will you need to renegotiate?
- Value of the Target Company — Is the company in good financial standing? Are you paying a fair price for it? Are there unseen liabilities that can affect the purchase price?
- Possible Financial Synergies — Do your companies use similar cost-saving measures? How will the M&A affect your existing or potential strategies for cost reduction?
- Target Company’s Operations — What is the company’s management structure? Will their current operations contribute to future ROI?
- Target Company’s Compliance Measures — What are the company’s existing compliance levels with regulatory laws? Are they compliant enough to avoid future fines or reputational harm?
While you could do all that due diligence on your own, there are quite a few perks to managing everything through a CLM platform.
Merger and Acquisition Process – CLM Benefits
CLM platforms are invaluable tools for navigating the complexities of M&A contracting. They optimize contract management at every stage, from pre-negotiation due diligence to post-deal integration, ensuring efficiency, compliance, and value realization.
Five Pre-Negotiation CLM Benefits for M&A
1. Migrate Legacy Contracts
Gathering the hundreds (if not thousands) of existing business contracts from your acquired company is a monumental task. Pulling contracts from separate storage spaces and migrating them into your own systems can take weeks, significantly slowing down your timelines for a smooth acquisition.
CLM software leverages artificial intelligence to ingest past and present business agreements at incredible speed. From there, you can store them in a single cloud-based contract repository for complete visibility of terms, obligations, and potential liabilities.
2. Identify Contract Inconsistencies
It’s an absolute nightmare to manually review all the contracts involved in an M&A. It takes too much time and leaves way too much room for your legal team to miss vital contract details. (In your defense, anyone would begin to make mistakes by the time they reach their 4,756th page of contract language.)
Instead, you can use AI-trained CLM software to easily auto-extract contract details, search your entire contract portfolio, and reveal discrepancies within minutes.
3. Determine Contract Value
Picture this: Monday morning, 10 a.m. The sun is shining. It’s your fifth day reviewing contract data and plugging each agreement’s expected value into a spreadsheet. Your head is pounding, your eyes are throbbing, and even your third cup of coffee isn’t keeping you focused.
Or… you can jump into your CLM system and let the AI software identify the present and future financial impact of obligations and clauses. Then, you’ll have the total contract value in front of you in minutes – no stress needed.
4. Account for Every Contract
It’s hard enough to track and audit contracts related to customer-facing deals or service levels. But you need to account for every agreement—and how they relate to each other—to get a full picture before you enter contract negotiations.
Your CLM platform can give you complete visibility into all your agreements, including their relationships. You can also access audit trails of the communications and edits for each contract once they’re ingested.
5. Keep Contract Data Secure
Parties exchange immense amounts of sensitive information during a merger and acquisition. Even if everyone involved signs an NDA, it’s all for naught if you’re not securely handling contracts and other data.
Working in a CLM platform with permission controls during your M&A prevents unauthorized access to shared, confidential data.
The right CLM solution also offers benefits once your AI due diligence is complete and contracts are signed.
Five Post-Negotiation CLM Benefits for M&A
1. Consolidate Contract Portfolios
Manually uploading all the new contracts you’ve gained through an M&A is painfully time-consuming, especially when pulling them from various drives and systems. That doesn’t even begin to cover pulling out all the data they contain.
By using a CLM platform to ingest and analyze your contracts, you can quickly identify duplicate agreements and language redundancies to consolidate your portfolio.
2. Educate Teams on Contract Processes
Let’s face it — change management isn’t easy. It makes one of your biggest challenges after a merger getting new teams aligned with existing processes. You can generally look forward to many training meetings and endless follow-up emails when people forget if a certain clause inclusion aligns with company positioning.
That’s all a thing of the past with AI CLM solutions. For starters, you can create a thorough contract playbook tailored to your enterprise’s needs and establish standardized contract templates and clause libraries.
More than that, by setting up workflows that match your processes, you can quickly and easily adjust every new employee with fewer hiccups.
3. Streamline Contract Creation
More people mean more contract requests. That’s just how it goes. While you could spend your days bombarded by sales, procurement, and IT teams as they ping you for new contracts, CLM offers a better alternative.
Through integrations with your existing tech stack, team members across your enterprise can initiate their own contract requests right where they are—keeping your inbox significantly less chaotic.
Remember those templates and libraries we just mentioned? Non-legal and legal ops teams can also leverage them to create their own first drafts. And you can relax knowing they’re using language you already approved.
4. Align Obligations and Key Contracts Dates
A merger is no excuse for missing contract obligations. Yet, it’s daunting to think of how you’ll manage this influx of contracts to keep up with deliverables, payment schedules, and the like.
By using an AI CLM solution to extract data points from your entire contract portfolio, you gain complete visibility to track every obligation to the extract clause it relates to. You can even automate invoice audits against purchase orders, contract terms, and performance data from other systems.
5. Manage Vendor Relationships
You might be thinking, how does contract lifecycle management have anything to do with my vendor management? After an M&A, you likely inherit and onboard a lot of suppliers who have no valid reason to trust you’ll be easy to work with. CLM empowers you to stay on top of obligations, invoice services accurately, and measure vendor performance. That level of contract intelligence helps you focus on improving business outcomes and keeping supplier relationships strong.
Streamline Merger and Acquisition Contracting with AI-Native CLM
See how you can craft better enterprise contracts and realize the value of every agreement with Sirion. Schedule a demo today.
Additional Resources
