Why trust can make or break your next acquisition

Legal: Caroline Nicholls, Thompson Smith and Puxon

In mergers and acquisitions (M&A), several factors drive valuation and desire to do the deal, but trust determines whether a deal closes smoothly or collapses under its own weight.

At first glance, M&A may appear to be a purely transactional exercise, getting the client from A to B through due diligence, approvals, disclosure and completion mechanics. However, beneath the reams of information, lies a human process built on trust and transparency.

Sellers need confidence that their disclosures will be used in good faith, to assess the viability of the transaction, not for ulterior motives. Buyers on the other hand, must have the assurance that the information disclosed is accurate and complete with no hidden surprises.

Why smaller deals rely on trust

Trust plays a crucial role where deals involve smaller private companies, where much of the value in the company lies with the people, relationships and culture. As lawyers, we focus heavily on ensuring that the contractual protections, through warranties, indemnities and covenants, give the buyer a recourse and all parties certainty of the information on which the deal has been struck. But ultimately, these can only go so far. There is no substitute for trust between the parties.

Building trust during negotiations

Legal professionals are trained to advise on and help clients mitigate risk. However, this is not merely a paper job. Our role is also to help build foundations for cooperation during the deal negotiations and after completion. Encouraging and facilitating open communication, within the boundaries of confidentiality and data protection, helps both sides move towards a common goal. Of course, this does not mean that negotiation is not crucial, in fact, the way in which M&A deals are negotiated also helps build, but equally can erode, trust.

Trust in M&A comes from informed confidence based on legal and financial due diligence. Done well, it replaces uncertainty with clarity and strengthens relationships. But if due diligence becomes a fishing exercise, or there are delays in responses without explanation, trust erodes quickly. The goal is to manage risk whilst preserving cooperation and respect for each party.

Trust beyond completion

Trust doesn’t end at the clink of a champagne glass on completion, instead it transforms. A change in ownership of a company requires integration, which in turn requires continued collaboration, with key employees, customers and suppliers. A deal built on mistrust can still reach completion, but it will rarely thrive and has the potential for protracted post-completion claims. So, where trust has been carefully nurtured, even unexpected challenges can be overcome.

The glue holding deals together

Trust is at the heart of M&As. Whilst the legal agreement provides the structure, trust is what keeps the deal together. At Thompson Smith and Puxon we strive to safeguard both – turning commercial objectives into legal certainty while preserving the transparency and integrity of the deal.