Closing is the ultimate stage in an M&A transaction where all parties meet to seal – and celebrate – their agreement; however, it can be a traumatic process due to the time spent in meeting rooms signing and initialising contracts. Lawyers and clients have long hoped for change in this regard.
During the COVID-19 lockdown, signs of a change emerged in the form of electronic signatures, as contracts could not be signed in person and scheduled closings were either dematerialised or delayed.
There are three types of electronic signature in the European Union: simple, advanced and qualified.
Only qualified electronic signatures have the legal strength of handwritten signatures.
Under French law, qualified electronic signatures are presumed reliable unless proven otherwise. Simple and advanced electronic signatures do not benefit from this presumption.
The COVID-19 lockdown was an incentive and a test for practitioners who previously had never used electronic signatures. Some of the pros and cons of electronic signatures are set out below.
Party preparation
To sign electronically, parties must prove their identity, log onto a secure signing platform and sign documents electronically by following the relevant procedure. Explanations of these steps are now part of the closing process and must be addressed in detail in advance by the parties' counsels. Signing instructions must be precise and anticipate all potential issues (eg, advising participants to check their junk folder to avoid missing any emails sent by the signing platform).
Time savings
An obvious advantage of electronic signature is the significant amount of time saved by parties that are no longer required to sign or initialise several copies of the same original document – which can take hours – or attend in-person meetings for an indefinite period.
Time savings are also advantageous to law firms which do not have to print all copies of relevant documents in advance and scan them once signed. Transaction bibles are also much quicker to prepare as all of the signed documents are already stored on a single platform.
Time stamping
Electronic signature have the added benefit of time stamping. Previously, all documents were simply dated using the closing date without mentioning the time of signature. This is no longer the case with electronic signatures, which always indicate the date and time of signature. Accordingly, the closing steps for dematerialised closings must be detailed and provide a chronological order of signature of each document, which may add some complexity to the closing process.
New clauses and habits
New clauses have emerged due to electronic signature to address, for example, the fact that all documents are time stamped. Time stamping and the need to ensure that document signatures are ordered chronologically mean that the usual last-minute negotiations in M&A transactions and the resulting changes to clauses are now more complicated. In the event that negotiations last too long, completion may be delayed and, in a worst-case scenario, parties might need to call back their funds and restart the overall closing.
As mentioned, under French law, documents signed with simple or advanced electronic signatures do not benefit from the same presumption as qualified electronic signature. Consequently, agreements signed with advanced or simple electronic signature often contain new clauses acknowledging the parties' choice to use such signature, their will to be bound thereby and their commitment not to dispute the probative force of such agreements.
The COVID-19 lockdown unexpectedly accelerated the use of electronic signatures – a promising and environmentally friendly (ie, reducing the use of ink and paper) development for future M&A transactions. As practitioners and clients are eager to increase transaction security, simplicity and efficiency, electronic signatures are bringing this goal one step closer.
