What effect does engagement letter have in merger and acquisition?

A letter of consent on cooperation is drawn up in cases where one organization gives a preliminary “go-ahead” to another company to form long-term partnerships or conclude an agreement on any transaction.

What is the engagement letter in M&A?

In most mergers and acquisitions (M&A transactions), the allocation of transaction risks is perhaps the most time-consuming process. After all, the interests of the parties to the agreement differ. The polarity of the interests of the parties and the difficulty of reaching an agreement on the acceptable for the parties distribution of transaction risks constitute a systemic risk for the transaction as a whole. For the comfort of the parties, the practice has developed a significant number of mechanisms to ensure compliance. One of them is an engagement letter.

The engagement letter is a type of letter of response and is drawn up as a positive reaction to the initiative letter. When compiling it, it is necessary to take into account certain nuances and adhere to the rules of office work: general for all correspondence and specific for this type of documentation.

They are drawn up in response to the receipt of a letter of inquiry, request, invitation, or offer. Like any other business correspondence, such letters require company letterhead, as well as strict adherence to the rules of office work.

The M&A engagement letter is the agreement between the business owner and the investment banker that outlines the terms and scope of the advisory services provided. It also includes the economic points that go to the heart of the relationship. 

In M&A deals engagement letter is mostly used for consent to conduct an audit or due diligence. Drawing up the document completes the stage of preliminary planning of the audit when the most qualified employees of the audit organization got acquainted with the features and conditions of the organization – a potential client.

The letter on the audit is sent directly to the head of the organization that invited the audit firm, before the conclusion of the audit contract. The main purpose of this document is to explain to the head of the organization the specifics of providing audit services. In addition, the parties will almost always sign a nondisclosure agreement (NDA) before they exchange confidential information.

Virtual Data Room – a secure solution for storing deal documentation

Many different types of documents and letters are processed in the M&A process. Thus, the need to set up the document workflow in a secure manner arises. Preparing, producing, and reviewing all of these documents is a complicated time-consuming process. In this case, Virtual Data Rooms learn more about due diligence data room can be the best solution.

Data Room is a digital platform that is a high-tech business model that creates value by facilitating exchanges between two or more interdependent groups of participants.

The introduction of the Data Room electronic document management system allows you to solve all these problems, as well as:

  • ensure the well-coordinated work of all departments;
  • simplify work with documents, increase its efficiency;
  • will increase the productivity of employees by reducing the time for creating, processing, and searching documents;
  • will increase the efficiency of access to information;
  • will allow differentiating the rights of employees’ access to information.

Data Room systems allow you to achieve consistency in the work of different departments while reducing administrative costs and eliminating the problem of data integration for different applications. These systems are a tool for improving management efficiency, making correct strategic and tactical decisions based on timely and reliable information issued by a computer.

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