A m&a transaction is the merger or acquisition of a business by another. The goal is to increase market share or profits by gaining access new technologies, products or markets.
The M&A process is a complex one and usually involves significant legal regulatory, tax and other issues to consider. In a typical transaction, the parties first decide on the structure of the deal – whether they wish to acquire assets or shares and in what form. This will impact virtually every aspect of the acquisition agreement. In certain situations it may be required to take steps prior to sale such as isolating the Target assets into a new company, whose shares can be bought.
Following this initial step due diligence is the next step. This involves a thorough examination of all the pertinent information about the Target including financial, operational and commercial information. This is usually the longest-running part of an M&A process. A thorough due diligence exercise can help a buyer to understand the full risk and benefits of a proposed deal. It can also uncover unexpected or unintended liabilities, resulting in the need to negotiate a revision of the price, indemnities or terms to the purchase agreement.
After due diligence, the parties usually draft an agreement known as a letter-of-intent (or a ‚term sheet‘,“heads“ of terms, or ‚heads‘ of agreement) that outlines the main aspects of the agreement including the timing. It will typically include an element called „representations and warranties“ where each party confirms that the information they shared during negotiations is accurate. This is designed to reduce the possibility of misunderstandings or misinterpretations that could lead to costly legal disputes following the conclusion of the deal.
The term sheet will contain a commitment from each party to maintain the confidentiality of information throughout the M&A transaction. This is vital to stop sensitive and confidential business information from being released to rivals or other parties interested in the transaction until it is completed. M&A lawyers can assist in drafting comprehensive confidentiality clauses that are legally binding for both parties.
The final step is the signing of an agreement confirming the key terms and dates of the M&A transaction. This is usually called the ‚purchase agreement‘ or ‚acquisition agreement‘. The final agreement will generally be subject to certain closing conditions, which include the successful completion of all financial and legal due diligence procedures and obtaining regulatory approvals. M&A lawyers can assist in negotiating the terms and make sure that the agreement is enforceable if there any dispute or data room M&A breach.