It’s often said that “hindsight is 20/20.” That phrase usually means we have discovered some valuable information that would’ve been very helpful with an earlier situation, task, or challenge. That saying is usually associated with something that didn’t quite go as well as planned.
During my senior year of college, I was tasked with writing a thesis as the final criteria for my Bachelor’s Degree in Business Management. This was to be a complete organizational, financial, and strategic audit of a global company. I completed the analysis and as part of my conclusion, stated the company should divest some of its assets to create value for the business which had stagnated over the past several years. A month or so after I had completed my research, it turned out that this company was preparing for divestment of major assets. I have to admit I felt a certain degree of satisfaction in hearing this news.
Now that I am a marketing coordinator at Seal, thinking about this company had me considering how organizations often find themselves in a “hindsight is 20/20” scenario after a M&A deal or divestiture is made. It is with the inheritance of risks and liabilities with M&A activity, and with the proper distribution of contractual obligations and liabilities with a divestiture. If organizations don’t manage this effectively when making these moves, they will have that “hindsight” moment and associated sinking feeling.
With divestiture, organizations must have a clear understanding of which contracts, and therefore which obligations, agreements, and performance metrics, are associated with each business. If that doesn’t happen, the business will carry excess risk, incur excessive costs, and miss key contractual elements such as auto renewals, incentives, indemnifications, and other important terms and provisions. We see this a lot, and in fact, Seal helped a very large technology company with a major divestiture recently, reviewing and categorizing approx. 500K contracts so they could be assigned to the right entity after the action. Without Seal, the manual review process would’ve taken forever, and the newly separate entities would have been carrying excessive exposure until the legal teams had fought through the sorting of the contracts and the analysis of their data.
On the M&A side, the challenges and risks can be even bigger. When a company wants to purchase another one, they may sample and review a set of contracts during the due diligence phase to assess obligations and risk. Under short timeframes, the sample can be just a fraction of the overall portfolio they would inherit, and would just assume the risk. Focus is often more on keeping the deal on track.
After a deal is done, and the celebrations and toasts have ended, it is now the post-sale hangover. The legal team must review and process all the new acquired contracts, which could be in the 100s of thousands within the integration work, and do so as quickly as possible. We worked with a large telco that acquired a competitor, and after 5 years, still had no idea of all the risk and liabilities they had inherited until they started using Seal. Another customer, a large energy company, executed a takeover and discovered after 3 years they were auto-renewing a lease of $400K per year on a facility that had been shut down at the time of the acquisition.
Prior to technologies such as Seal, the process of gaining insight into their contracts was to hire rooms full of people, often off shore, and manually review the contracts. This is a very costly and time intensive process that only captures some predefined set of information. If the information need ever changes, the manual review process starts over.
The same way the glasses I have needed all my life provide me with clear vision, Seal Software give organizations the clear vision into contracts needed to optimize the outcomes of a divestiture or M&A activity. Using advanced technology, Seal finds contracts wherever they are, and using Natural Language Processing and Machine Learning, and the data is extracted, indexed, and made available quickly to business users. These users can also create custom policies to look for very specific things. The contract data extracted by Seal can be migrated into other business systems CLM, ERP, CRM, Procurement, etc. to increase the value and ROI of those investments.
The technology allows organizations to perform due diligence on a much larger set of contracts within an M&A event, finding hidden indemnifications and assignment rules, for example. It can also relieve the post-sale hangover, by making the analysis of large quantities of contracts fast and easy. And for divestiture, it allows legal and business teams to analyze, categorize, and segregate large numbers of contracts much faster and with less cost.
Seal is the perfect solution to avoid the “hindsight is 20/20” sinking feeling when working through with M&A or divestiture activities. It provides sharp vision going in to the events, and gets the new business entities off on the right foot from the very beginning.