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Mergers and Acquisitions

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The Corporate Marriage

When I was asked by a colleague to write an article about ‘Mergers and Acquisitions’ and keep it short, my first thought was ‘how? it’s such a large topic’!

This is the type of deal I work on every day for my clients and I know from experience that every business is different and every transaction has its own peculiarities. However, like Maria in the Sound of Music, let’s start at the very beginning…

There are broadly two types of acquisitions and, by extension, mergers – share acquisitions (in which the buyer acquires the shares held by the seller) and asset acquisitions (in which the buyer acquires the assets of the business). The latter generally carries less risk for the buyer as the majority of the liabilities of the seller are not inherited but there are exceptions to this.

Therefore, when structuring a purchase, consider the following:

  • How will the business be valued?
  • How will you finance the acquisition?
  • Who is the seller? What is their financial position?
  • How will the acquisition affect the property, employees, pension arrangements and intellectual property of business?
  • What are the tax consequences of the transaction?
  • What are you looking to achieve in buying the business?

and, importantly,

  • What are you buying? 

It sounds like a silly question but the value of most businesses is more than the sum of its parts. I said earlier that asset acquisitions generally carry less risk than shares acquisitions but, if you are buying a business where the value of the business lies in contracts it holds, it might be better (assuming the business is incorporated) to buy the shares of the company so that the contracts stay with the company and you don’t have to seek consent from the other party to the contract to the transfer of its business to your company.
Once you have the answers to these questions then you can formulate your acquisition or merger plan.

Finally a piece of free advice (from a lawyer, I hear you say!) If you are asking your seller to give you information about the business either prior to offer or, more often, prior to completion of the sale, you may need to be prepared to sign a confidentiality agreement. In exchange, if your investigations are likely to tie up key members of your team or you’ve reached the stage of instructing professional advisers and incurring costs, consider asking for an exclusivity period to give you the time to investigate without worrying about rivals.

If you have any questions or need some advice on Mergers and Acquisitions please contact us.

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