The Efficient Transaction Playbook

What is “transaction efficiency”?

Transaction efficiency means minimizing the waste of time, effort and money in the completion of a business transaction.  Transaction efficiency is not the same as transaction “effectiveness.“   Effectiveness of a transaction is a function of whether the transaction delivers the desired result.  For a complex business acquisition/sale transaction, effectiveness requires a sound acquisition/sale strategy, thorough due diligence, proper transaction structure, fair pricing, accurate documentation, and seamless integration.  Similar requirements for “effectiveness” can be defined for other transactions – real estate sales and leases, commercial loans, supply arrangements, and many others.   A transaction that is not effective is a failure.

Transaction efficiency refers to the transaction process – minimizing the waste of time, effort and money in the interactions between the parties and their advisors.  It is built around organization and effective communication, and offers the additional benefits of reduced confusion and aggravation.  A transaction process that is not efficient is wasteful and frustrating.

Efficiency is a term often used to describe mechanical processes – and in this context “efficiency” is reduced by “friction.” In a transactional context, “friction” that makes a transaction efficient is a function of disorganization in the transaction process.

Why does “transaction efficiency” matter?

Transaction efficiency leads to faster transaction completion, improves interactions between the transaction parties, and reduces the time, effort and money spent on the transaction.  Complex transactions involve significant levels of professional services, and these costs are generally a function of time.  At the extreme, in a transaction that is so inefficient that major mistakes occur, even the “effectiveness” of the transaction can come into question.

Start with a transaction timeline

For every transaction, no matter how simple or complex, the first step in transaction efficiency is the development of a timeline.  Even if it is rare that a transaction progresses as quickly as hoped, the exercise of developing a timeline with key efforts and deliverables provides the first step in the organization and efficiency of the transaction.  The timeline is also important in confirming the availability of internal and external resources.  While the timeline and involvement of various team members will be refined in the planning process, the timeline is a useful starting benchmark.

Plan for transaction efficiency

Building on the transaction timeline, transaction efficiency requires focused planning around three key elements of the transaction process:

  • Organizing documents and information
  • Accurately defining the transaction participants
  • Facilitating the exchange of documents and communication among transaction participants

M&A Process Overview

While not every transaction is as complex as a business merger/acquisition (M&A) transaction, looking at key elements for planning in a complex M&A transaction can be helpful.   The M&A transaction progresses with a sequence of deliveries, communications, and negotiations that looks something like this timeline.  It is helpful in the planning process to distinguish between “negotiated” documents and existing documents and information.  In the timeline below, the top bar reflects negotiated, collaborative transaction documents and the bottom bar reflects reference and due diligence document and information deliveries.

The initial steps in the M&A transaction process include signing a confidentiality agreement or non-disclosure agreement (NDA),  accessing general target information – often a confidential information memorandum (CIM) – and at least some due diligence information, and completing a nonbinding term sheet or letter of intent (LOI).   Even if a small team is involved in these early steps, the potential for disorganization is present and can set the tone for the transaction ahead.  It is important that the planning process occur early in the transaction, even if there is uncertainty about whether the transaction will proceed.

As the transaction progresses, a substantial amount of due diligence information will be made available by the seller (and possibly third parties), often in multiple waves of information, and sometimes with updates late in the transaction process.  Follow-up questions from the buyer about the due diligence data are inevitable.  Proper security, sharing, and archiving of the due diligence data, follow-up questions, and responses is critical.  Email is a disorganized way to approach this process.  A better approach is to exchange this information within a secure virtual data room where the it is available to all transaction participants in a single location.

Transaction Document Planning

After the initial negotiation efforts around the NDA, letter of intent, and due diligence checklist, then the significant phase of definitive transaction document negotiation begins. The most efficient transaction document negotiation process should define:

  1. Who reviews the transaction document drafts?
  2. How are transaction document drafts exchanged?
  3. How are document comments collected and acted upon?
  4. Who proposes document drafts and circulates revisions, both for internal review and for presentation to the other parties?
  5. Who monitors and manages the process?
  6. When is the target date for document signing and closing and what are the measurable milestones along the way?

The complexity of the transaction documentation process will expand as more complicated documents are prepared and exchanged, many of which will touch upon specialty areas such as intellectual property, environmental matters, regulatory compliance, litigation, tax, and employee benefits.  Some of the transaction team members will be involved in negotiating virtually all of the documents, while other team members will have input on only a few.  But it is important that all team members, even those with limited day-to-day involvement, be kept in the loop even if only to monitor the progress of the overall transaction or to review changes in the documents touching their area of expertise.  In all cases, it is important to define the document review and drafting team as early as possible, anticipating the issues likely to arise and the need for specialized expertise.

Due Diligence Planning

The due diligence planning process presents its own set of questions to consider:

  1. Who can access the due diligence information? Where and how can they access it?
  2. Who can add (post) new due diligence information?
  3. How are questions presented? How are responses provided?
  4. How are transaction participants notified when new information becomes available?
  5. Who monitors and manages the due diligence process?
  6. When is the target date for due diligence completion and what are the measurable milestones along the way?

It is critical to define the due diligence team and to be able to efficiently accommodate team changes.  The make-up of the buyer’s transaction team to review due diligence information will depend upon the nature of the transaction, the business assets and technology involved, and many other factors.   From the seller’s standpoint, the team members responsible for collecting and providing information and responding to questions must be carefully defined.  Much of the seller’s information will probably be made available in a virtual data room, although an on-site visit to the seller’s facilities might be required.  Often the buyer’s due diligence team is a large and evolving set of participants, and keeping everyone on the same page is a challenge and a frequent source of transaction inefficiency.

During the due diligence phase, summaries, projections and other project information may be created and shared.   Procedures must be in place regarding the creation and sharing of this information, with careful attention to confidentiality and controlled disclosure inside and outside of the organization.  In general, defining one set of transaction participants (with members from both transaction teams) with access to all transaction documents and information is the most efficient.  However, in some situations it may be appropriate to set up a separate, semi-private “transaction” for an internal transaction team or a subset of the participants.  This approach should be taken with caution, and only when a truly discreet set of negotiations or discussions is expected within that smaller group.

Resource Planning

A transaction will never be efficient if each party does not have the right resources available at the right time.   Even if “high-priority” is assigned to all transaction-related activities, the reality is that many of the transaction participants will have day-to-day business responsibilities that cannot be ignored. Anticipating increases in transaction activity and communicating those expectations to the transaction team will yield significant efficiency benefits.

Over the years we have developed the concept of the “Deal Curve“ to forecast and plan the evolution of the transaction and to identify delays, inattention, or other issues that can impact the pace (or viability) of the transaction.  The Deal Curve should anticipate the activity level for all parties and should be adjusted as delays (or rapid progress) by one party impacts the expected activities of the other.  Consciously considering expected activity levels yields real transaction efficiency benefits.


Transaction Commons Deal Curve, activity increases over time

Anticipate changes

The reality is that at some point in every transaction there will be changes. Previously provided due diligence information may become inaccurate.  New information may become available.   A contractual term previously acceptable to one party may no longer be so – either based on a change in circumstances or after further consideration.  While these changes can be frustrating,  any prudent transaction process recognizes that they may occur and includes a mechanism for handling them as efficiently as possible.  Any way you slice it, changes are a key element of “waste“ that can lead to transaction inefficiency. The challenge is to deal with any changes as cleanly as possible to mitigate their impact on transaction efficiency.

Often the changes are more around timing than the substantive information or agreement terms.  These timing changes can result in relatively long periods of inactivity, which can lead to wasteful “friction” when the parties return to the transaction and try to pick up where they left off.

And even documents thought to be “final” are often revised again – based on new facts, changed treatment of issues, or late input from reviewers.  Saving a document with “final” in the document name is almost a jinx – guaranteeing that it will not be the final version of the document.  But the email that circulated the now outdated version will look “final” – again increasing the risk of error in utilizing email to exchange document versions.  This is where the benefit of an efficient transaction process management platform is especially apparent.

It is also important to efficiently accommodate personnel changes. Even the most organized transaction process can be challenging when a new participant becomes involved mid-transaction, either because of personnel changes at one of the parties (or their advisors or lenders) or because new issues come to light that require adding team members with different areas of expertise.  These new participants will need to fully understand the current state of the transaction, and in many cases may also need access to previously exchanged information, like due diligence information and document drafts, to understand how the transaction negotiation reached the current state.

Transaction process management best practices

Assign a Transaction Administrator

It is important for each primary party in the transaction to designate an experienced person (with excellent organizational skills and attention to detail) to be the clearinghouse and administrative manager for transaction activity.  At Transaction Commons we refer to this person as the “transaction administrator” for each party.  In complex transactions, the transaction document negotiation process will typically be managed by lead legal counsel for each party.  Even when legal counsel is actively involved, their efforts should be complemented with dedicated transaction administrative support from each party’s business team.

Define and understand virtual data room rules

When using a virtual data room, careful transaction process planning is particularly critical. Rules should be established regarding who may post information, when it may be posted, and then who is responsible for reviewing that information and communicating the results with the appropriate team leaders. The potential for large amounts of new information to be suddenly added to the virtual data room late in the due diligence process should be addressed and prevented.  It is critical that all transaction participants receive notice of any new document or information postings. Similarly, rules should be established regarding virtual data room access and visibility into details about who has reviewed which documents, when, and for how long.  In many situations, giving either party access to this detailed information may not be appropriate or desirable.   Rules regarding this kind of access and usage information monitoring need to be disclosed, discussed, and defined by all parties to the transaction.

Stay on the same page by avoiding email

Transaction participants may be accustomed to exchanging document drafts by email.  The potential for inefficiency and error can be high without very careful version management and inclusion of all appropriate transaction team members.   It is important to identify the participants who will be reviewing the documents and discussing comments with the internal team versus the participants who will be preparing revisions to document drafts and sharing those revisions with the other transaction parties.   Multiple transaction participants emailing document drafts – especially when sorting emails is used to identify prior versions – will lead to confusion.

It is important for transaction administrators on both sides of the transaction to keep track of the current version of each document being negotiated.  In some cases weeks will pass between the time a transaction document is completed and the time it is signed.  There may also be a lapse between the time a document draft is circulated and the time when other transaction parties focus on providing comments to that draft.  Searching for these earlier document drafts in an email inbox will be time-consuming and may not accurately locate the most current version.

Beware of “electronic closings”

Electronic document signing tools are widely used for routine, non-negotiated transactions.  While there is something to be said for the convenience of electronic document signing, for more complex transactions the clarity and certainty of physically signing the final transaction documents (including exhibits and schedules which are initialed in some cases) is usually still desirable.  These signed documents are then scanned, posted, and available to all parties. And, of course, the importance of identifying and signing only the final version of each of the transaction documents cannot be overstated!  Failing to do that could lead to an ineffective transaction!

Use the right platform to keep the entire transaction organized

Email is not the way to manage an efficient transaction.  And a virtual data room is helpful, but it is only one play in the efficient transaction playbook.   A file sharing approach using DropBox or a similar platform requires intensive management and is susceptible to errors in file permissions.   For achieving transaction efficiency, the best platform is one that addresses all three of the key planning elements discussed above:

  • Organizing documents and information
  • Accurately defining the transaction participants
  • Facilitating the exchange of documents and communication among transaction participants

Transaction Commons provides a secure platform for organizing and sharing draft transaction documents across a defined transaction team.   Organizing transaction documents and information around a defined “transaction” is the key to efficiency.  In most situations, one integrated transaction including all transaction team members from all parties is the most efficient.  As discussed earlier, in some cases multiple “separate” sub-transactions should be managed independently (such as an institutional loan associated with the M&A transaction).  The planning process should consider whether separate sub-transactions (each with their own “team”) exist and how they should be managed.  The fewer sub-transactions, the more efficient the transaction process is likely to be.  But in every case, defining the “transaction” and organizing the documents and information around it is the best practice.

Build your playbook, but be ready to collaborate

For a party that is frequently involved in transactions, there are benefits in developing a “playbook” of standardized procedures to achieve transaction efficiency.  But every transaction involves at least two parties, and one party’s “playbook” may not be acceptable to the other.  Developing the playbook for a new transaction should be a collaborative effort, and whenever possible should be built around a neutral platform like Transaction Commons that does not favor one party over the other.