Re-imagining deal delivery in the finance sector

The global financial crisis that began in 2008 changed the landscape of financial services forever.  Restructuring and deleveraging became the order of the day. Large portfolios of loans were sold to some of the world’s biggest equity and hedge funds, and investment banks. Conducting diligence quickly and effectively was vital for the bidders, and required a different type of legal solution.

The challenge

Due diligence of loan assets is typically resource-intensive and costly but it is essential. Only by understanding the loan book can bidders form an assessment on its market value.

Bidders often need to contend with extremely strict timetables, making the approach traditionally taken to diligence by many advisers inadequate. 

No longer is it enough to throw huge teams of lawyers at a project only to receive lengthy, inconsistently compiled due diligence lacking any real or useful analysis of risk, let alone commercial insight.

Working with one opportunity fund, Pinsent Masons developed a way to deliver diligence that would add value in every sense.

The solution

First, we fundamentally moved away from the traditional ‘throw bodies at it’ approach to due diligence.

Our approach incorporated elements of automation and disaggregation into the diligence process as never before, and tailored it to the needs of the client. At the outset we sat down with the client to find out what risks it truly cared about. This meant taking the time to understand the underlying business plan for the assets.

We were then able to take this insight and engineer an online questionnaire completed via a cloud-based portal. This would enable a consistent assessment of risk and would red-flag matters of material concern to the client. A team of lawyers around the firm’s 2,500-strong network then reviewed the loan documentation necessary to complete the questionnaire.

This process involved a review of over 3,000 documents between 26 December and 9 January, traditionally peak vacation season.
That assessment would be pointless if it was not accessible. A transaction of this scale usually involves producing a due diligence report that is hundreds or thousands of pages long, comprising extracts from the underlying documentation.

We took a different approach. Pinsent Masons delivered a series of thematic ‘Significant Risk’ reports that were less than 20 pages long. These red-flagged areas of material risk and were produced in a way that it could be easily digested. The client got concise and usable data about only the risks it truly cared about.

Further, Pinsent Masons worked with LPO (legal process outsourcer) provider Exigent to develop a coordinated management process. This ensured the legal and beneficial title from all the underlying assets in the loan book was properly transferred. The process covered some 20 legal jurisdictions.

This was a major project management exercise which culminated in a week-long closing process including thousands of documents. Taken together, the bid process and subsequent completion represented cutting-edge and supremely efficient project management.

The result

The impact of this approach cannot be underestimated. First and foremost, its legal team was able to spend;

• Less time wading through due diligence and considering spurious legal risk
• More time focusing on issues that spoke to pricing in the transaction

Second, all the data collated during the due diligence process now sits on a client extranet. This means asset managers, lawyers and professional advisers have ongoing access to a bank of information for better investment management.

Third, the client got all this for significantly less than it might normally have expected. For transactions of this scale, Magic Circle firms are instructed typically with commensurate rates. Through a mixture of automation and a flexible approach to resourcing, we saved the client money and provided a better end product.