Mergers and acquisitions (M&A) 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 major event for any company. 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 require legal preparation. For example, you may consider entering into a confidentiality and non-circumvent agreement at the early stages of exploring a transaction. If you are a seller in the transaction, a business broker engagement agreement will set out terms for your exclusive representation. Priori is committed to helping you find the right mergers and acquisitions lawyer in our curated marketplace to evaluate, structure, and execute your company’s merger or acquisition and to provide you with mergers and acquisitions resources.
A merger occurs when two or more separate companies combine to form a single company. There are five common types of mergers: conglomerate, horizontal, vertical, product extension, and market extension.
A merger of equals is a merger of two or more companies where there is no designated acquiring company. Rather, the combined companies will have equal or close to equal board representation on the new board. Stockholders of each company surrender their shares and receive shares from the new company.
A true merger of equals is relatively rare. Usually one company is actually acquiring another, but out of deference to management and employees or as a marketing tactic, the companies will refer to it as a merger instead of an acquisition.
An acquisition is the purchase of one company (the target) by another company (the acquirer). Acquisitions 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 target company’s assets.
Stock purchases. The acquirer buys the shares of the target company from its shareholders. As a result, the acquirer takes on all of the target company’s assets and liabilities. The complexity of a stock acquisition from a legal perspective depends on many factors, one of which is the number of shareholders in the target company.
Asset purchases. The acquirer buys some or all of the assets of the target company. Examples of assets can include equipment, vehicles, stock, inventory, or facilities. The acquirer need not purchase all of the target company’s assets, but rather has the option to choose which assets--and liabilities--to take. This is usually considered one of the advantages of asset purchases over stock purchases.
An experienced mergers and acquisitions lawyer can help you understand the advantages and disadvantages of stock vs. asset purchases.
Mergers and Acquisitions Resources and Considerations
Both mergers and acquisitions are complex transactions that require significant strategic business planning and legal due diligence. An experienced mergers and acquisitions lawyer can help guide you through the various legal areas that govern M&A law.
Some important legal considerations include:
Due Diligence. During a merger or acquisition, both the selling and the acquiring company must conduct due diligence. For sellers, this means taking the necessary steps to maximize the value of the company and closing the deal. In order to accomplish these goals, the seller must produce complete and accurate documentation. The acquiring company must then review and analyze the documentation to assess whether it supports closing the deal and to identify any red flags or risks. The information the seller needs to provide often includes 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 considerations. A due diligence lawyer can help you with this step.
Corporate Governance. One of the critical areas of due diligence is corporate governance. This requires the seller to open its incorporating documents, bylaws, minutes from board meetings, shareholder materials, locations where it does business, any previous deals, changes in control and corporate reorganization, stock transfer ledger, organizational charts, policy manuals and corporate codes of conduct, press releases, and bank accounts. Again, timely and complete disclosure by the seller will help close the deal and alleviate any fear on behalf of the acquirer of unexpected problems.
Antitrust. Proposed transactions that affect commerce in the United States and are over a certain size are reviewed by governmental agencies to prevent anticompetitive effects, such as the creation of a monopoly. Accordingly, most large M&A contracts include provisions dictating how the parties will work together during a potential antitrust review. Sellers want certainty that the deal will close regardless of the time it takes for antitrust clearance. However, 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 help negotiate a mutually acceptable antitrust-related provision to prevent the deal from falling apart even prior to antitrust review.
Taxation. Major corporate transactions like mergers and acquisitions often carry with them significant tax implications for all entities involved. Accordingly, tax lawyers should be closely involved in structuring the transaction so the entities can take advantage of tax-preferred structures and avoid unnecessarily expensive tax loads.
Depending on the deal, pricing can vary widely. When you hire a mergers and acquisitions lawyer in the Priori network, hourly rates for this type of transaction typically start at $225 per hour, but rates can run significantly higher based on whether a mergers and acquisitions lawyer has certain types of experience. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and receive a free price quote from one of our lawyers.
How can a mergers and acquisitions lawyer help with your business transaction?
A mergers and acquisitions lawyer can ensure that your merger or acquisition complies with the relevant state and federal laws that govern business transactions. Your mergers and acquisitions lawyer will also help you decide on the right structure for your deal, draft and negotiate the terms of the transaction, obtain any third-party consents, close the transaction, and perform various post-closing tasks.