Apples versus Oranges: “Finding the Deal” versus “Closing the Deal”
There is a lot of excitement around the application of technology to transactions ranging from consumer loans, angel investing, commercial real estate, and business M&A transactions. Many of these transaction platforms are designed to serve as an intermediary between the transaction parties. The focus is on finding the deal by matching up potential transaction participants.
Many of these platforms afford transaction information access where there is not really a practical alternative intermediary. Angel investing is an example. There are clear efficiency benefits in minimizing wasted time of “manually” identifying and sifting through these otherwise hard-to-find potential transactions. In other situations these applications are intended to eliminate or diminish the role of a broker in the transaction process. Depending on the setting, there are real questions about whether a diminished broker role is a positive or a negative. But until the full costs of “disintermediation” become apparent in these situations, this kind of platform will continue to proliferate.
But there is a big difference between finding the deal and making and closing the deal. Only in the simplest setting – and one with little or no “negotiation” (perhaps consumer lending) – is it realistic to expect an “automated” closing of the transaction. For every other transaction – between the milestones of finding and closing – are due diligence, negotiation, agreement drafting and revisions, more negotiations, signing, and pre-closing. There is enough adversity between the transaction parties that each will need their own advocates, advisors, and professionals. A party should not be willing to give up independence and advocacy for the sake of an “automated” transaction process. But they should strive for an efficient process, driven by secure, organized and efficient communication and information/document sharing among the transaction parties.
Deal-finding platforms are designed to share high-level deal information and marketing materials across a universe of potential counterparties. The business model driving these platforms is focused on the broad dissemination of deal information and the aggregation of transaction data. But once the deal is identified, are the details of the transaction negotiation process really the business of the universe of users with access to the deal “finding“ platform? Should those details potentially become part of the information aggregated, analyzed, and used (and maybe sold) by the platform? Is it even appropriate for those platforms to share updates on who might be considering a transaction (such as an investment) and the status of that investment?
Getting the deal closed is a much more collaborative, complex, and most importantly private, communication process among just a few parties (intended buyer, seller, lender, etc.). It may be time consuming, contentious, and sometimes unsuccessful. But it should be approached with an expectation of efficiency made possible by technology. But technology that helps only one party manage its transactions – like a large buyer requiring that its vendors use its “portal” – is not an efficiency solution for both, and is probably a negative for the party that doesn’t own the platform, regardless of how it might be portrayed.
Instead, both parties should use a platform like Transaction Commons that focuses only on completing one specific transaction, with each of the defined parties to the transaction having equal access to a body of due diligence information and a full private repository of all agreement versions necessary to efficiently close the transaction that the parties have found.