We have previously explored some potential uses of blockchain in the M&A process. Generally, blockchain refers to a growing list of blocks linked by cryptography. Each block contains a timestamp and a link to the previous block. When a new block is added to the growing list, it is verified by independent parties on the peer-to-peer network and is by design, decentralized and resistant to modification of the data. The possibilities are immense – but ultimately, what are some of the ways that blockchain can help the M&A process?
One key area may be with the use of "smart contracts" – an umbrella term used to describe computer protocols that facilitate, verify or enforce the negotiation or performance of a contract. Blockchain allows further development of the smart contract, as parties can deploy their smart contracts on a blockchain, where all terms are transparent, unalterable and automatically enforced.
Another area is due diligence. According to some experts, a common problem in the due diligence process is the lack of diligence undertaken by seller companies on themselves. Occasionally, contracts are unsigned or signed by persons without requisite authority. For buyers to verify the validity and performance of these contracts, additional steps are often required, which increases the cost of due diligence. This problem could be avoided by recent developments in the blockchain legal innovation space.
Furthermore, in the context where a company employs many sub-contractors to complete a project, a distributive ledger process for smart contracts that allows for the transfer of legal documents and money safely and securely between all the parties involved. When such company is up for sale and going through the due diligence process, instead of tracking down every contract with different sub-contractors, their signatures and/or performance stages, the ledger can be used to easily verify the exact state of each contract.
Blockchain technology can also assist in recording intellectual property (IP) assets. Digital trails of records of IP assets are being created so that in a due diligence process, all inventions, designs and proofs of use can be quickly verified to prove ownership, integrity and transfers of the IP assets.
The potential benefits of blockchain may be endless, but ultimately, these benefits will be contingent on how widely the technology is adopted and the overall security of the application tools. We look forward to seeing how the trend develops.
The author would like to thank Victoria Liu, summer student, for her assistance in preparing this legal update.
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