Mergers and acquisitions can be complex, time-consuming, and emotional for all parties involved. A good lawyer will drive the process efficiently and ensuring your interests are protected at all times.
There are typically 7 big steps involved in the Mergers and acquisitions (M&A) process:
- Transaction Structures: To get started, the parties involved need to agree on the type of acquisition. There are three common structures:
- Asset Purchase: In an asset purchase, the buyer buys all (or part) of the seller’s assets and assumes only the seller’s liabilities agreed to be part of the deal, except where law causes some liabilities to follow the assets .
- Stock Purchase: The acquisition of a company by stock purchase involves the purchase of all the seller’s shares. Unlike a buyer in an asset sale, a buyer of stock accepts ownership of the company with all of its assets and liabilities.
- Merger: In a merger, two companies combine to form one entity.
- Engagement Letter of the Financial Advisor: The company to be sold, known as the target of an M&A deal, will retain a financial advisor to guide the company through the M&A process. The advisor typically provides the valuation and helps in negotiating terms of the deal. For smaller sales, a lawyer may handle this step.
- The Non-Disclosure Agreement: The M&A process often involves two companies who are competitors in the same industry. This creates the need for protection of the non-public aspects of the company. The buying party will sign a Non-Disclosure Agreement (“NDA”) preventing either company from using sensitive information about the other to its advantage.
- The Term Sheet or Letter of Intent: These documents lay out the basic terms of the proposed deal in a non-binding manner. It should be made clear if any aspects of the LOI is intended to be binding.
- Due Diligence: The most important part of the M&A process is the due diligence phase. This involves the buyer being given access to the business procedures and records so the buyer can validate all claims that have been made about the company, assets, liabilities etc. This process helps in finalizing the valuation. Lawyers are invaluable in this phase.
- Drafting and Negotiating Documents: Based on the findings in the due diligence phase, negotiations of the final binding terms is the next step. Then contracts need to be drawn up.
- Closing: Closing is where the finalized deal documents are signed. Ownership changes hands and payment is finalized.
It is important to understand any restrictions and obligations that are in place after the sale is final. Often the seller has restrictions in terms of competition and more.
The above is a quick outline of the process. As you can imagine, there are many details and complexities that arise throughout the process. To keep your deal amicable, efficient and smooth, it is very important you are working under the guidance of an experienced lawyer.