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Arlington, Va., October 15 2019

Gartner Says the Average Time to Close an M&A Deal Has Risen More Than 30 Percent in the Last Decade

Legal Departments Must Adapt to Growing Volume and Complexity of Deals

The average time to finalize a merger or acquisition has risen to 38 days after it has been announced — 31% longer than in 2010, according to Gartner, Inc. Closing dates have grown even longer for midsize deals ($500 million to $5 billion) and large deals (more than $25 billion), which take an average of 106 and 279 days to close, respectively.

As merger and acquisition (M&A) deals grow in value and volume, multiple trends are contributing to an increase in how long they take to complete. Gartner’s analysis of more than 23,000 deals among S&P 1200 companies since 2010 reveal growing complexity in the deal-making environment. A rise in deals for scope and capabilities, digitally driven deals and cross-border deals were among the trends contributing to the slowdown. Growing scrutiny from governments, regulators and investors also contributed.

“Organizations increasingly rely on M&A to drive value, which means a greater volume of deals for legal departments to manage,” said Abbott Martin, vice president and research leader for Gartner’s Legal practice. “The complexity of deals has also risen with their volume. Legal departments need new strategies for managing the associated costs while delivering due diligence and deal support in a timely manner.”

Legal’s Current Role in M&A

In-house legal departments play a crucial role during the M&A deal execution phase. Legal responsibilities typically include reviewing and drafting documents related to due diligence, negotiation and preparation, as well as counseling and resolving any outstanding legal issues before the deal closes.

Gartner research found that about 75% of companies rely on in-house attorneys to draft legal documents associated with the preliminary stages of M&A transactions, including letters of intent and nondisclosure agreements. Depending on their average number of deals, however, companies differ greatly in how they allocate internal legal resources to M&A activity. A lack of internal resources leads some organizations to lean heavily on outside law firms to assist with M&A deals.

“While outside expertise is necessary for certain types of transactions, in-house teams must ensure that the deal actually achieves the desired synergies. The in-house team is best positioned to understand corporate operations and is critical to deal execution and long-term value capture,” said Mr. Martin.

 

Adapting to an M&A-Focused Business Environment

Gartner recommends that legal departments make five key shifts in M&A management to effectively support deal volume within their organizations:

1. Increase In-House Legal Capacity. Bringing legal M&A responsibilities in-house is more than a cost-saving measure; it makes strategic sense if your company is able to derive competitive advantage from its ability to execute and integrate a high volume of acquisitions, said Mr. Martin.

2. Create Agile Deal Teams. In-house M&A capabilities are increasingly challenged by supporting the growing volume and complexity of digital deals. Rather than static deal teams with limited, fixed expertise, build agile deal teams that can efficiently use subject matter experts to provide the specific input needed to move new types of deals forward.

3. Strengthen Cyber Protections. With ever-increasing cyber threats, due diligence must adapt and evolve to meet the risks associated with novel acquisitions. Legal teams must now account for cyber, privacy and data management practices during this process.

4. Focus on Processes, Decision Making and Culture. A successful, efficient post-close integration will become increasingly valuable and essential as deals become more complex. Legal should focus less exclusively on deal terms and contracts, and instead devote more effort to bringing corporate decision-making processes and cultures together.

5. Clarify the Deal Narrative. All messages communicated to investors, governments and employees should be anchored around the deal’s rationale — the reason for the deal and the value it drives. Convince these stakeholders on the merits of M&A and the associated change story.

“Finding and sticking with a compelling deal narrative is critical for maintaining trust among these groups and for maintaining your ‘social license’ to make future acquisitions,” said Mr. Martin.

Gartner for Legal & Compliance Leaders clients can access the full results of the survey in Preparing Legal for M&A.

Non-clients can learn more in New Risk Management Strategies.

About the Gartner Legal & Compliance Practice

The Gartner Legal & Compliance practice supports senior legal and compliance executives with their most critical priorities. Gartner offers a unique breadth and depth of content to support clients’ individual success and deliver on key initiatives that cut across finance functions to drive business impact. Learn more at https://www.gartner.com/en/legal-compliance/role/legal-compliance-leaders.

About Gartner

Gartner, Inc. (NYSE: IT), is the world’s leading research and advisory company and a member of the S&P 500. We equip business leaders with indispensable insights, advice and tools to achieve their mission-critical priorities today and build the successful organizations of tomorrow.

Our unmatched combination of expert-led, practitioner-sourced and data-driven research steers clients toward the right decisions on the issues that matter most. We are a trusted advisor and objective resource for more than 15,000 organizations in more than 100 countries — across all major functions, in every industry and enterprise size.

To learn more about how we help decision makers fuel the future of business, visit gartner.com.

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