Mergers and Acquisitions
Talking about Mergers and Acquisitions (M&A), they are two distinct forms of business transactions that both result in the consolidation of two companies into one. Completing a merger or acquiring another business is a crucial event for any company. It should be noted that such transactions often have dramatic implications for all stakeholders — owners, management, employees, and even customers. Even the early stages of exploring a potential merger or acquisition may need legal preparation. For instance, you may consider entering into a confidentiality and non-circumvent agreement at the early stages of exploring a transaction. In the transaction, if you are a seller, a business broker engagement agreement will set out terms for your exclusive representation.
You need to find the right mergers and acquisitions attorney to evaluate, structure and execute your company’s merger or acquisition and to provide you with mergers and acquisitions resources.
A merger happens when two or more separate companies combine to form a single company with there being five common types of mergers including conglomerate, horizontal, vertical, product extension, and market extension. Remember that a merger of equals is a merger of two or more companies where there is no designated acquiring company, and the combined companies will have equal or close to equal board representation on the new board with stockholders of each company surrendering their shares and receiving shares from the new company.
A true merger of equals is quite uncommon. Usually, one company is actually acquiring another, and the companies will refer to it as a merger instead of an acquisition out of deference to management and employees or as a marketing tactic.
An acquisition is the purchase of one company (the target) by another company (the acquirer), which can occur through the purchase of the stock or other equity interests of the target company or through the purchase of all or a substantial amount of the assets of target company.
- Asset Purchases – The acquirer purchases some or all of the assets of the target company with some common examples of assets being equipment, vehicles, stock, inventory, or facilities. The acquirer has the option to choose which assets–and liabilities–to take, he isn’t required to purchase all of the target company’s assets, which is usually considered one of the advantages of asset purchases over stock purchases.
- Stock Purchases – The acquirer purchases the shares of the target company from its shareholders which results in the acquirer taking on all of the target company’s assets and liabilities. From a legal perspective, the complexity of a stock acquisition depends on different factors, the number of shareholders in the target company being one of them.
An experienced corporate mergers and acquisitions attorney/lawyer can give you a good insight into the advantages and disadvantages of stock vs. asset purchases.
Both mergers and acquisitions are complex transactions that necessitates significant strategic business planning and legal due diligence. An experienced mergers and acquisitions lawyer can help you understand the various legal areas that govern M&A law.
SOME CRUCIAL LEGAL CONSIDERATIONS INCLUDE
- Both the selling and the acquiring company must conduct due diligence during a merger or acquisition, which, for sellers means taking the necessary steps to maximize the value of the company and closing the deal. The seller must produce complete and precise documentation in order to attain these goals. The job then goes into the hands of the acquiring company who must then review and analyze the documentation to evaluate whether it supports closing the deal and to identify any potential risks. All the company’s corporate governance documentation, financial liabilities, capitalization schedules, tax information, operating information, customers and vendors, personnel and labor relations, payroll and benefits, real property, intellectual property, research and development, contractual rights and obligations, and any other special industry consideration- are the information that the seller needs to offer. Hiring a due diligence lawyer can prove to be highly beneficial.
- Corporate governance is one of the critical areas of due diligence, which requires the seller to open its incorporating documents, bylaws, shareholder materials, locations where it does business, any previous deals, stock transfer ledger, organizational charts, changes in control and corporate reorganization, policy manuals and corporate codes of conduct, press releases, and bank accounts.
- Governmental agencies in order to prevent anticompetitive effects, such as the creation of a monopoly review proposed transactions that affect commerce in the United States. Most large M&A contracts accordingly include provisions dictating how the parties will work together during a potential antitrust review. Sellers want assurance that the deal will close regardless of the time it takes for antitrust clearance. On the other hand, acquirers want the option to walk away from the deal if it is no longer consistent with its economic interests. A mergers and acquisitions lawyer can play a huge role, who can help negotiate a mutually acceptable antitrust-related provision to prevent the deal from falling apart before antitrust review.
- Imposition of Taxes- Significant tax implications for all entities involved are often carried by major corporate transactions like mergers and acquisitions. In order for entities to take advantage of tax-preferred structures and avoid unnecessary expensive tax loads, tax lawyers should be closely involved in structuring the transaction.
ROLE OF MERGERS & ACQUISITIONS LAWYERS:
- Identify the business objectives of the client.
- Identify the legal issues, which vary depending on factors like whether the deal is friendly or unfriendly.
- Advise on deal and negotiating tactics.
- Conduct due diligence.
- Create a “road map” for the client from beginning to end, and include a timeframe.
- Determine the tax implications and if they require special structuring.
- Obtain third-party consents from lenders or parties to other contracts.
- Negotiate agreement, sign, announce publicly, close the deal.
- Work with local counsel if cross-border, and review all the client’s contracts: business, employment, outsourcing, debt instruments, preferred stock, etc.
- Work with antitrust attorneys to evaluate regulatory obstacles, gain regulatory approval and analyze any other required regulatory approvals.
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