E-signatures – a step towards fully digital M&A transactions?
11th April 2018
The challenge of organising and obtaining signatures on completion of an M&A transaction is one faced by every corporate lawyer. Current culture and practice around completions remains heavily in favour of the traditional method of wet-ink signature by hand requiring signatories to physically congregate in one place or being near a printer and scanner in order to sign documents and send over email. The practicalities around completions are even more challenging where signatories are based in multiple jurisdictions, time zones or travelling.
In an era where businesses are increasingly moving their signing interactions with customers/suppliers to a fully digital model in order to match technological expectations, why are parties to an M&A transaction not doing the same?
Other stages of the M&A transaction have benefited from advances in technology, first with online data rooms and latterly with the use of assistive AI in contract review, document automation and collaboration platforms at the due diligence and disclosure stages. Could the use of electronic signatures at the completion stage bring us a step closer to the fully digital M&A transaction of the future?
This article explores:
- the deployment of a digital completion process based on electronic signatures
- the challenges inherent in such a digital completion process
- a potential middle ground approach to using electronic signatures on M&A transactions
A digital completion process
As many seasoned directors and authorised signatories will tell you, whilst high-end biscuits and lavish post-signing champagne celebrations are a perk of attending a physical signing, the time spent waiting and hand cramp from physically signing hundreds of documents are not.
Similarly, when signing remotely over email, the hassle of printing many documents, following highly prescriptive signing instructions (in order to comply with ‘Mercury method’ rules) and correctly scanning and emailing the signed documents back to lawyers can be onerous and often results in documents being incorrectly signed, dated or initialled.
Our approach for a digital M&A completion process involves the use of an electronic signature platform to manage and streamline the signing stage of an M&A transaction.
Instead of travelling to one location to sign documents or being on standby near a printer/scanner to print, sign and scan documents, a signatory is sent an email with a link to a secure webpage hosted by an electronic signature platform, accessible from any browser on any compatible device. From this webpage the signatory may sign the documents with a few keystrokes or taps on a touch screen from anywhere in the world using a computer, tablet or smartphone with an internet connection. The signatory is guided by the platform straight to the relevant signature block on each document (and may only sign where permitted, avoiding the issue of incorrectly placed signatures). No software need be installed (the documents are stored in and accessed via the Cloud) and the signatory does not need to create an account (although this may be desirable if future signings are anticipated).
Visibility can be maintained by all interested parties (e.g. the counterparties, their lawyers, the bank or lender (if relevant) etc) who can view signatures being applied in real-time and automatically receive a copy of each document once signed meaning there is no delay in one party sending scans of signed documents to the other; it also means a ‘bible’ of closing documents is effectively ready immediately with little human intervention.
Signatories benefit from not having to travel to a single location, reducing travelling time, and legal fees.
Attached to each batch of signed documents is a full audit trail in the form of a certificate showing the time, date and location of signature. The leading electronic signature platforms use two-factor authentication and encryption to validate the identity of the signatory and protect against documents being changed or tampered with during or after the signature process. The use of a reputable electronic signature platform should give the parties comfort that a valid electronic signature is being created and complies with applicable legislation.
The nature of this innovation goes beyond simply providing an alternative mechanism for signing documents - it proposes a fundamental shift away from the traditional culture and practice around the completion of M&A transactions
One of the main reasons why a fully digital method for completing M&A transactions is yet to be widely adopted by law firms has to do with lingering uncertainty surrounding the electronic execution of deeds, particularly in relation to witnessing an electronic signature.
In a practice note published in July 2016 following the coming into force of the eIDAS Regulation, the Law Society of England and Wales (with input from leading counsel) considered that it is possible for an electronic signature to be witnessed by the witness physically witnessing the signature and applying their own electronic signature.
Notwithstanding the Law Society’s practice note (which has no legal force), neither the eIDAS Regulation nor UK legislation directly address the issue and the UK courts have not yet provided definitive clarification/commentary on the matter. Furthermore, two key public institutions to whom filings are often made post-completion of an M&A transaction, HM Land Registry and HMRC, require physical wet-ink signed copies of dispositionary documents and deeds (in the case of HM Land Registry) or any documents on which stamp duty is payable (in the case of HMRC).
Whilst the issue around witnessing can be circumvented, in the case of a corporate signatory, with two directors executing a document as a deed (provided the company’s articles permit this) rather than one director in the presence of a witness, the uncertainty is unlikely to be resolved without new legislation expressly dealing with the issue. It is worth noting in this regard that the Law Commission, in their Thirteenth Programme of Law Reform has highlighted electronic signatures as an area of focus in order to eliminate uncertainty over things such as witnessing an electronic signature. Given the impending impact of Brexit, the Law Commission has stated that e-signatures could “boost Global Britain and help enhance the UK’s competitiveness as we leave the EU”.
Where a transaction involves the signature of documents subject to foreign law, advice will need to be obtained as to whether the law of that country recognises electronic signatures as valid and enforceable in that jurisdiction. Whilst most jurisdictions recognise the validity and enforceability of electronic signatures to varying degrees (the U.S. and EU are widely regarded as being most favourable), some jurisdictions may require an apostille or notarisation by a notary or public official who will usually require the document(s) to be signed in their presence before affixing an official seal or stamp to the physical document. Some electronic signature providers have built functionality into their platforms which allow for electronic notarisation of documents (mainly in the U.S.), although it is likely to be some time until this becomes common practice amongst notaries globally and will in any event need to be driven by wider adoption of electronic signatures.
Given all the above, those law firms that have embraced electronic signature technology have tended to use it more in relation to commercial contracts, where documents are more commonly signed electronically, than corporate M&A transactions.
A middle ground?
Undoubtedly there will be parties (and lawyers) who will continue to want the face-time opportunity which a physical completion presents and there is no reason why this should not continue but with the physical signing of key transaction documents (e.g. sale and purchase agreement) and deeds that require a witness supplemented by the electronic signing of ancillary documents (which are often numerous and signed under hand) on a laptop or tablet.
Given the choice between walking around a table to physically sign 100 documents or clicking a button, one would tend to think that the signatory would prefer the latter.
It could be that this ‘middle ground’ approach is a way forward until the point at which the certainty around the electronic signing of deeds and the related issue of witnessing is put on a surer statutory footing.
A change in culture and practice
The nature of this innovation goes beyond simply providing an alternative mechanism for signing documents - it proposes a fundamental shift away from the traditional culture and practice around the completion of M&A transactions towards a more collaborative and technologically-driven process which delivers cost and efficiency savings for clients.
Combined with the use of other technologies such as AI and matter collaboration platforms with integrated electronic signature functionality, the adoption of an electronic completion process could represent another big step towards a future of fully digital and collaborative M&A transactions.
For more information please contact Craig Rogers or Angus Simpson.