Mergers and Acquisitions: Legal Perspectives and Procedure



Mergers and acquisitions (M&A) is a universal phrase that refers to the consolidation of two companies or assets involving a variety of financial transactions.

It may also be used to refer to the department or unit at financial institutions that deal or transact with issues bothering on mergers and acquisitions.

The process of the business transaction and outcome of M&A usually results in the purchase or takeover of one company by another. The companies involved in a merger or acquisition, upon completion will combine businesses together or sop up one business entity into another.

The effect of M&A will make the business larger, smaller or completely alter the structure of both companies.

The law regulating Mergers and acquisitions generally involves negotiating the transaction and preparing the necessary paperwork to complete the merger or acquisition legally by filing the necessary papers and forms with the appropriate Government authority, paying the prescribed fees and counseling directors of companies in the possible potentials and/or risk of the proposed mergers and acquisitions.

Mergers and Acquisitions

Merger in Business

A merger occurs when two corporate organization or companies by virtue of a legal agreement come together to form a new company and consolidate to carry on business together.

Generally, the nature and character of a merger are premised upon the fact that it will create a distinctive business structure and atmosphere that will allow the merging companies an equal playing ground in the affairs and process of the merger. Naturally the old shares from each merging company will be transferred to form new shares in the name of the new corporate body.

The basis of a Merger

  • Two directly competing companies may come to terms for a merger to form a larger company that will offer the same product or service.
  • Two companies who offer related products in different markets can also agree to merge for the purpose of expanding the size and dimensions of their respective markets.
  • A manufacturer can also consider a merger with a supplier, or companies that offer different but similar products to offer a combination of products in a particular market.

Acquisition in Business

When one company buys over the assets and liabilities of another company and takes over operations and goodwill of same, an acquisition would be said to have occurred legally speaking.

An acquisition also known as a takeover can involve both private and public companies. In some cases the company to be acquired or her management may be opposed to the occurrence of the transaction, but due to the commercial realities they may be left with no other choice, such acquisition is called a hostile acquisition.

Acquisitions are usually carried on be a larger or older company acquiring a smaller or newer company. But in a few other cases, it may be a “reverse takeover” where a younger or smaller company acquires a larger company but maintains the name and goodwill of the larger company.

The Aim of Mergers and Acquisitions

Merger and Acquisition operate to enhance the business position of a company. It will increase the value of both companies by the transaction. It some cases, it might offer a company the opportunity to diversify and branch-out the geographic locations of her interests in the conduct of business. Shareholders of the company to be acquired may record huge gains as a result of the transaction of merger and acquisition.

The Process or Procedure of a Merger or Acquisition

  • Tender offer

A tender offer is an offer made by an acquiring company to purchase stock from the company to be acquired. A merger or acquisition usually starts with a tender offer made by the acquiring company. Generally, an acquiring company will strive to get sufficient shares to have a controlling interest and relevance in the company.

Tender offers are usually a public affair. It is a publication of her offer by a buying company to purchase the shares of another company. The buying company will typically make an offer to buy shares from existing shareholders of another company at a purchase price that is higher than the current market value to lure the shareholders to accept their offer.

The acquiring company may purchase equal to five percent of the stock of a company prior to filing relevant documents and forms with the Securities and Exchange Commission (SEC).

At the time of filing with SEC, the acquiring company will provide lucid information on their intentions whether the transaction is geared towards acquisition of share or it is an investment in the company. A tender offer is usually connected to an acquisition.

  • Letters of Intent

Letters of Intent is the commencement stage of a merger. A letter of intent will usually contain the fundamental intent, aim and objective of the parties seeking to be merged and consequent to which they will be able to negotiate the absolute details and terms of the agreement.

The letter of intent is an expression of the intendment of parties containing specific details and displaying relentlessness about chasing the merger and proffering the need for further negotiations to seal up the transactions.

A letter of intent might not necessarily contain the terms of a final agreement; however, there are facets or portions of a letter of intent that may be legally binding and enforceable. For instance a clause agreed by the parties to confidentiality or exclusivity of information during negotiation.

It is the responsibility of Attorneys specialized in the practice of mergers and acquisitions law to painstakingly draw up terms of the letter of intent to ensure that it conveys the intent and purpose of their client.

Mergers and Acquisitions

Conducting Due Diligence

The responsibility to do due diligence after the letter of intent lies both parties seeking to merge. Due diligence entails facts finding and learning about the other company and providing information about your company as well. This is usually carried out by Lawyers, accountants and other legal representatives of the Company. The rationale of due diligence is to provide both parties intending to merge the relevant information pertaining to the Companies to enable them negotiate the merger fairly or comparatively.

Regulations and Compliance with State Law and Securities and Exchange Commission

Merger or acquisition is regulated by the U.S. Securities and Exchange Commission (SEC). There are also State Laws that influence the conduct of mergers and acquisition.

The SEC is a federal government agency in the United States bearing the legal responsibility of protecting fairness and efficiency in business transactions and amongst players.

Part of the compliance and regulation required by SEC for merging companies is the provision of information to all the shareholders using a proxy or information sheet of the merger or acquisition as the case may be.

Civil Litigation

Like in any other commercial transaction, where a merger or acquisition is not correctly handled or where a party violates the terms of a merger, acquisition or the binding terms of a letter of intent, such commercial dispute can lead to civil litigation.

The erring party will be liable in damages as it applies to the law of contract. Parties may consider arbitration before going to Court; they may also consider the option of agreeing to liquidate damages. In some cases, damages for the violation of a merger or acquisition agreement can include the benefit of the bargain.

The Global Practice of Merger and Acquisition Law

Due to the increase in global and international businesses, mergers and acquisitions require attorneys with experience and should approach international transactions under this subject from an international perspective.

There are unique ways which international law applies to mergers and acquisitions. Lawyers must work to appreciate the dynamics of the in relation to how it applies to their client’s transaction.

It is advisable for Law firms specialized in mergers and acquisitions to have foreign offices or colleagues to facilitate the operation of their transactions.

A merger or acquisition involving large international companies can have a significant impact on the currency and economy of an entire country. Therefore, mergers and acquisitions lawyers should consider the totality of all rules and legislation whether local, state, national or international laws that may have an impact the transaction.

Legal Practice of Mergers and Acquisitions Law

Mergers and Acquisitions Law is an aspect of business or commercial law. Generally, some business lawyers specialize in the practice of same, while others may practice mergers and acquisitions law with a combination of other field or areas of law.

Large companies that seek to merge or acquire other companies frequently hire large law firms due to the volume of work, knowledge and resources needed. International transactions also require massive resources and vast knowledge that transverse national laws of each country and the international laws and treaties that are relevant to the transaction. International law firms or law firms with international offices or presence are regularly able to provide sufficient capacity and legal services expansively and at a cost-effectively rate.

Mergers and Acquisitions are not briefs for an in-house counsel in a company. Attorneys who render large mergers and acquisitions legal service can expect to focus their practice solely on the niche area of law due to its intricacies.

If you are looking for a world class law firm for a large merger and acquisition, you may read our article on Top 20 Law Firms in America or visit: upcounselmarketplace.

Mergers and Acquisitions Lawyer

Mergers and acquisitions are very lucrative aspect of law practice; however it requires vast experience, knowledge and competence. It cannot be used for trial and error. The life and subsistence of companies depends on it.

Companies depend on attorneys who specialize in the field of law to draw inferences reach their business goals legally and efficiently. Mergers and acquisitions briefs are usually high-profile and they require the services of first-rate lawyers.

Mergers and acquisitions law is very challenging and the passion of an attorney will always generate the required results.

Mergers and acquisitions alter the landscape of any business. They require both legal and premeditated preparation. Lawyers who focus on mergers and acquisitions have the opportunity to work on complex business matters that are critically consequential to the business operations of their clients and they can quickly gain international credence depending on the size and nature of the merger or acquisition.


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