Corporate Mergers and Acquisitions Lawyer
Mergers and acquisitions have one common significant aim, which is to improve or protect the profitability or strength of the main company. In simpler words, they help in maximizing the wealth of the shareholder. The motives behind mergers and acquisitions might also be less admirable in certain cases. Whatever the main motive of mergers and acquisitions, it is essential to have a better understanding of the process before moving forward.
What is an Acquisition?
This process is simpler than a merger. The acquiring organization buys most of the stakes of another entity. The acquired company may or may not keep its own identity and name, depending on the situation.
Typically, the acquiring organization is more solvent and larger than the company acquired. An acquisition is also called as a takeover, and both of these terms hold a negative connotation as it implies that a smaller organization is being taken over by a larger organization against its will.
Acquisition usually depends on the consent and cooperation of the board of directors, and at times the management as well. They determine what the next steps would be and how the acquired company would move forward.
What is a Merger?
As for a merger, it refers to combining two different businesses as one. Typically, both the companies are the same in size at the time of the merger, and are equal partners in this newly established venture. The consolidation is similar to a merger.
There can be various reasons behind mergers and acquisition, including:
- Diversifying higher growth markets or products
- Financial synergy
- Undervalued target
- Risk diversification
- Accelerating growth
- Enhancing market share
- Considerations of taxes
- Technological changes and strategic realignment
- Enhancing the performance of a company
No matter what is the reason for a merger and acquisition, the right legal documentation are necessary for a smooth transaction and to ensure all involved parties are in consent with the contract and responsibilities.
Structuring a Deal
The most important and complicated step in the process of mergers and acquisition is to structure a deal. Numerous factors must be considered for this step, including certain negotiation points, financing types, conditions of the market, contacts, accounting issues, taxes, rival bidders, corporate law, securities regulations, and antitrust laws. The most important documentation in deal structuring are the Letter of Intent (LOI) and Term Sheet.
Mergers and Acquisitions Rival Bidders
In most of the cases, acquisitions are potentially competitive or competitive. Organizations typically have to make a ‘premium’ payment for acquiring the target organization, and as a result, have to outbid their rival bidders. For justifying making more payment as compared to their rivals, the acquiring organization must show that they can make this acquisition more successful than any other bidders.
Financial vs. Strategic Buyers
In mergers and acquisition deals, there are usually two kinds of acquirers – financial and strategic.
Financial buyers refer to the institutional buyers like a private equity organization that aims to own the acquisition target but not be directly involved in operating it. These buyers typically utilize leverage for financing the acquisition and perform the Leveraged Buyout (LBO).
Strategic acquirers refer to other organizations, typically direct competitors or organizations in other similar industries so that the target organization can neatly fit in with the core business of the acquirer.
Steps in Mergers and Acquisitions
Typically, the corporate merger and acquisition process includes the following 10 steps:
Creating a Strategy
Firstly, an appropriate acquisition strategy is required to initiate the process. This strategy is typically based on the acquirer’s idea or motive behind the acquisition. They must have a plan about what they want to do with the acquired company and how to gain from it. This should include the main purpose of the acquirer, goals, and expected success.
Setting Mergers and Acquisition Search Criteria
Next, it is essential to determine the main criteria to determine the potential target organizations, for instance, customer base, geographical location, profit margins, etc.
Looking Up Potential Targets
Once the criteria has been decided, the acquirer utilizes it to search for potential companies, evaluate and shortlist them.
Initiating the Planning Stage
The acquirer will next contact the shortlisted organizations and send them a good offer. The main aim of this is to initiate the interaction in order to attain further information about the target companies and to determine the amenability of the company.
Performing Valuation Analysis
If the initial interaction goes well, the next step the acquiring company takes is to request the target company to send all relevant information, including current financials, profits, and losses, etc. This will help in the further evaluation of the target company. This will help the acquiring company in getting a clearer picture, setting goals, establishing plans and strategies, and most importantly, determining if this would be a suitable acquisition target.
Once the valuation analysis has been conducted, the acquirer would have enough information and details regarding the target company to come up with a reasonable offer. Once the offer has been made, the two companies can further negotiate the terms and agreements.
Performing Due Diligence
This step can be exhaustive and begins as soon as the offer is accepted by the target company. The aim of conducting due diligence is to determine whether the acquirer assessment of the valuation of the target company was correct or if further details are required. This is done through a thorough analysis and examination of each and every element of the operations of the target company. This will include human resource, customers, liabilities, assets, financial metrics, etc.
Executing the Contracts
Once all the due diligence has been completed, and no serious concern has been identified, the next step taken by the acquirer is to create the final purchase and sale contract. Both companies will determine which type of contract and purchase agreement is required as per the situation, whether it would be a share purchase or an asset purchase.
Developing a Financing Strategy
The acquirer should explore all possible financing options beforehand but the details of the financing strategy are finalized in this step, once the type of contract is decided and the sale and purchase agreement has been signed.
Closing the Deal
The final step is when the deal is officially closed. This is the step when the management of both the acquirer and acquired companies begin the merging process of both firms as per the purpose and goals of the main business.
If you are looking for a corporate merger or want to acquire one, it is essential to get a business litigation lawyer to ensure everything goes smoothly and that you and your assets are protected. Contact Shiner Law Group and get a free evaluation of your case by our experienced business litigation lawyers.