M&A deals: impact on the company, procedure, importance of involving a lawyer

BASE (basic) 7.83

advertisement

Ланткевич Кирило

Lawyer

Ukraine / Dnepropetrovsk region

i

Reading time: 14 minutes Total views: 76

Rate:

0

Publication date: 12.08.2024

I am studying in the third year of the State University of Economics and Technology.I specialize in contractual, economic and corporate law, in particular, I provide consultations and write articles.

Mergers and acquisitions (M&A) are key processes in corporate governance and business strategies used to strengthen market positions, increase competitiveness, or achieve other strategic goals. Here are more details about these two processes:

Merger

A merger is the process of integrating two or more companies into one new economic unit. As a result of the merger, a new company is created, which combines the assets, liabilities and other resources of all the participants in the agreement. Key aspects of the merger include:

• Creation of a new legal entity: As a result of the merger, a new company is formed, which may receive a new name or retain the name of one of the parties to the agreement.
   
• Pooling of Resources: A merger allows for the pooling of resources, including capital, technology, markets, and human resources, which can lead to lower costs and increased efficiency.
   
• Synergy: The merger is expected to produce synergy, meaning that the overall effect will be greater than the sum of the individual parts. This can take the form of cost reduction, increased revenue, or improved customer service.

Acquisitions

A acquisitions is a process in which one company (the acquirer) acquires control over another company (the acquiree). The acquisition involves the acquisition of more than 30% of the authorized capital or shares of the absorbed company, but the legal independence of the latter is preserved. Key aspects of absorption include:

• Control and management: After an acquisition, the acquiring company has control over the acquired company, including its assets, liabilities and operational processes.
• Financial and strategic objectives: A takeover may be undertaken to achieve specific financial or strategic objectives, such as market expansion, acquisition of new technologies or increased competitiveness.
   
• Legal independence: Unlike a merger, in the process of acquisition, the absorbed company often retains its legal form, although in practice its business processes may be integrated into the structure of the acquirer.

Difference Between Merger and Acquisition

A merger results in the creation of a new legal entity, while a takeover usually leaves the legal personality of the absorbed company but with controlled management. In a merger, control is shared between the two merging parties, while in a takeover, the acquiring company establishes control over the absorbed company. A merger often aims to preserve or combine the reputation of both companies, while a takeover may preserve the reputation of only one of the companies. The challenges faced by a company when deciding whether to conduct mergers and acquisitions (M&A) are key to achieving strategic goals and improving overall business performance.

The main steps in concluding M&A deals?

The implementation of mergers and acquisitions (M&A) is a complex and multi-stage process that requires detailed planning and careful execution of each stage. Here is a structured description of the classic order of implementation of M&A deals using the example of a takeover, with an emphasis on key stages:

1. Introductory meeting and NDA signing: At the initial stage, there is an introductory meeting between the Acquiring company and the Target company. The purpose of this meeting is to discuss general terms and to see if there is potential for further negotiations. After the positive results of the introductory meeting, the parties sign a nondisclosure agreement (NDA), which ensures the protection of information that will be shared during further negotiations and audits. This is important to ensure the confidentiality of the fact of negotiations and the exchange of sensitive data.
    
2. Description of conditions (Term Sheet): This is a document that records the main terms of the agreement, such as the duration of the process, the scope of the audit, the price range, the form of payment and the subject of purchase. It is not legally binding, but is important to agree the initial terms between the parties. This is a simplified document, often in the form of a list, which serves as a basis for further detailed negotiations.
    
3. Letter of Intent: A document that describes the main terms of the agreement, its structure, price, payment method, obligations of the parties, assurances and guarantees.A protocol can be fully mandatory, optional or mixed. It serves as a road map for the implementation of the agreement and provides the basis for the subsequent detailed agreement. It is important to take into account all disputed issues, as their resolution at this stage will help to avoid problems in the future.
    
4. Conducting an audit (Due Diligence): This is the stage of checking the target company to identify potential risks and confirm the reliability of the information. The audit may cover legal issues, accounting, tax issues, economic evaluation of the business, as well as other aspects such as environmental and customs legislation. Due Diligence can be conducted by the buyer or seller (Vendor Due Diligence).
    
5. Obtaining consents and permits: After conducting the audit or in parallel with it, the parties ensure that all necessary consents and permits are obtained. This may include corporate consents, clearances from antitrust authorities and other legal requirements. Preparing and obtaining these consents early can help avoid delays in the implementation of the deal.
    
6. Preparation of final agreements: This is the final stage, which includes the preparation and signing of the main transactional agreements, such as purchase and sale agreements, swaps, corporate agreements and additional agreements (on the provision of services, employment agreements, non-competition agreements, etc.). At this stage, all necessary permits and consents are also finally obtained.

Lawyer services when concluding an M&A agreement:

Lawyer services online plays an important role in the merger and acquisition (M&A) process, providing legal support at all stages of the transaction. Here are the types of legal services that can help at each stage of the process:

Development of the Term Sheet and legal analysis of the situation: The lawyer helps to draw up a document that reflects the main terms of the agreement, such as the price, the form of payment, and the subject of the purchase. This document is often used as a basis for further detailed negotiations. Verification of compliance: Convincing that the Term Sheet complies with legal requirements and ensures the protection of the client's interests.

Conducting the audit: Assistance in planning and coordinating the Due Diligence process, including the identification of key audit areas (legal, accounting, tax, etc.). Assessment of audit results and preparation of recommendations for management of identified risks and problems.

Obtaining consents and permits: Lawyers online prepare documents for obtaining consents from shareholders, corporate bodies, creditors, as well as permits from regulatory authorities (antimonopoly authorities, control authorities). Lawyer consultation on regulatory issues: Providing advice on regulatory requirements and the process of obtaining all necessary permits and consents.

Preparation of final contracts: The lawyer prepares and reviews basic transactional contracts, such as purchase and sale contracts, corporate contracts, escrow contracts and other additional agreements. Ensuring that all contracts meet legal standards and are correctly executed.