Mergers and Acquisitions
We specialise in Mergers & Acquisitions
Mergers & Acquisitions (M&A) are often the most effective way for companies to transform their businesses, whether through acquiring or divesting of businesses or subsidiaries, acquiring technology or supply chains, investing in new product lines, or entering or exiting markets.
Our experienced, strategic and innovative M&A specialists work hand-in-hand with you, across the full scope of an M&A transaction, from preparing a company for purchase and negotiating the upfront commercial terms, to conducting the due diligence investigation, structuring the transaction in an optimal manner, drafting comprehensive transaction agreements, to providing project management and implementing legal closing. We also offer pragmatic and sound advice in relation to the regulatory requirements and the risk factors at play
Our services include sales of businesses, sales of shares, share swaps, corporate restructurings, private equity transactions, broad-based black economic empowerment transactions, share buy-backs, mergers, schemes of arrangement, takeovers and management buyouts, both locally and cross-border.
As with marriages, business acquisitions often deliver surprises after the I do’s. Our goal is to limit these surprises.
- Robyn Bandey, Caveat Panel Member
Mergers & Acquisitions
‘Mergers and acquisitions’ is a broad term which covers any transaction in which one business is absorbed into another, or in which one party buys the controlling shares or business of another party. The transactions may be simple, or they may be complex, requiring a number of inter-linked agreements. Regardless of the level of complexity, transactions of this type have a number of things in common. The key elements are price, payment terms, subject matter (what is being bought), and warranties. Applicable regulatory requirements can come into play as well.
Price and Payment Terms
Whilst price is always a matter for negotiation, the manner in which the agreed price is calculated and paid will often depend on the nature of the business being acquired. Many transactions include a portion of the price which only becomes payable if certain future performance targets are met by the business concerned. This creates a risk for the seller, especially if they have limited involvement in the business after the deal is done. It is also not uncommon for payment of a portion of the agreed price to be deferred and paid at certain dates in the future. Whilst this can assist the purchaser from an affordability and cash-flow perspective, it creates a risk for the seller which should be mitigated by appropriate security.
Subject Matter - what is being bought?
The majority of businesses are housed in companies. The acquisition of a particular business (a company acquisition) can take the form of a purchase of the shares in the company in which such business is housed, or the purchase of the business itself as a going concern, from the company in which the business is housed. A company merger can be vertical (two companies at different levels of the same supply chain), horizontal (two competing companies, sometimes triggering competition regulation) or concentric (two companies with slightly differing product offerings). The nature of what is being bought (shares in a company, or a business as a going concern) will affect the terms of the transaction agreements, as well as the respective levels of risk for the parties involved.
Regardless of the nature of the transaction, the purchaser will almost always request warranties. Warranties are simply promises given by the seller to the purchaser about the nature and the condition of what is being bought. The warranties serve to reduce the purchaser’s risk, because they enable the purchaser to bring a claim against the seller for compensation should any of the warranties later prove to be incorrect. Warranties are often a great source of anxiety for a seller, as they create a scenario in which the seller may become liable to the purchaser further down the line, should a skeleton come out of the business’ closet. The risk which warranties create for a seller can be mitigated by including in the transactions agreements limitations on the seller’s potential liability. The most common of these are a cap on the maximum amount of the seller’s potential liability to the purchaser, and a maximum time period within which warranty claims may be brought against the seller.
In any transaction, each party must bear some risk – what’s important for each client is to find a path between bearing too much risk, and being so risk-averse as to back away from an attractive deal.
When a business needs M&A legal assistance:
Mergers and acquisitions involve nuanced structuring, negotiating, documenting and implementation – tasks best done by experienced M&A lawyers, often with the input of tax and IP specialists.
Lawyers with experience in these high-stakes transactions are able to ensure that the parties they represent are properly protected, allowing for a higher chance of success in the long term.
Frequently asked questions on Mergers & Acquisitions
The terms “mergers” and “acquisitions” are often used interchangeably, but they differ in meaning. In an acquisition, one company purchases another outright. A merger is the combination of two companies, which subsequently form a new legal entity under the banner of one corporate name. The umbrella of Mergers and Acquisitions however encompasses the selling, buying, consolidation, merging and/or separating of shares, assets, businesses or companies and all respective laws, guidelines, strategies and intricacies that govern these transactions. There are often many different ways to skin a cat, however the goal is always to find the strategy, structure and protections that adequately cover all parties to the transaction.
In a simple acquisition, the acquiring company obtains the majority stake in the acquired firm, which does not change its name or alter its organizational structure. In a merger, the boards of directors of two companies approve the combination and seek shareholders’ approval. A consolidation involves the creation of a new company by combining core businesses and abandoning the old corporate structures. Shareholders of both companies must approve the consolidation. There are many intricacies and strategies that can be followed in an M&A transaction to ensure all parties are adequately protected and all benefits are maximized.
- MARIAM HAROUN, Caveat Panel Member
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