Current wave of ‘Blockchain’ in M&A
Mergers & Acquisitions (M&A) can be complex, time and cost intensive. While there have been discussions around inflow of technology in executing M&A deals, we wait to witness a substantive shift.
Need for technology
The market needs a technology that could effectively reduce risks and enable dealmakers to enter into agreements with a higher level of comfort, regardless of the location of the parties, which is particularly significant in a cross-border deal.
As a digital technology that can automatically record and verify transactions on a real time basis, blockchains appear to be promising in making M&A deals more efficient and cost effective. Blockchains could vastly change how investors value, negotiate, and execute deals. As such, the advantages that a blockchain offers outweigh its cost and risk.
Application of blockchain technology
- Due Diligence: Blockchains offer a digitally shared database, that cannot be tampered with. This database could be used to create permanent and unalterable record of information disclosed during the due diligence, thus increasing data connectivity. More importantly, the decentralized nature of blockchain protects the transfer of intellectual property as well.
- Smart Contracts: Another potential application of blockchain technology is through the use of ‘smart contracts’. A smart contract could streamline the process of negotiating M&A contracts. Further, conditions to closing could be digitally monitored, which would in turn facilitate automatic completion of a transaction. Accordingly, both parties will be assured that payments and assets will change hands, as programmed. Drafting of earn-out provisions would be simplified – the payments can be automated upon occurrence of a tigger event.
Roadblocks and way forward
The implementation of a blockchain is not possible without a powerful network access. As such, the platform needs to be more accurately designed. Many players are struggling with familiarizing themselves with the technology and it is still widely perceived that it only pertains to cryptocurrency. At a global level, countries are in the process of developing a legal framework around blockchains and given the regulatory uncertainty, the question of liability remains unresolved. That said, the wave of blockchain technology has hit the market already, and it holds the potential to revolutionize M&A deals.
Tanvi Arora, Principal Associate
Tanvi Arora is a Principal Associate with TMT Law Practice. She completed her BA.LLB (Hons.) from New Law College, Bharati Vidyapeeth Deemed University, Pune in 2016. She is enrolled with the Bar Council of Maharashtra and Goa. In her 5 years of experience of working as a corporate transactional lawyer, Tanvi has primarily worked on mergers and acquisitions and private equity deals and general corporate advisory. She has routinely represented various corporate investors (both financial and strategic investors) in a broad range of domestic and cross-border transactions. She has also represented on-shore NBFCs, companies / corporate groups receiving private equity investments in India.