A m&a transaction is the merger or acquisition of a business by another. The goal is to increase market share or profits by having access to new technologies, products, or markets.
The M&A process is complicated with a lot of legal tax, regulatory and tax issues to be considered. In a typical transaction the parties first agree on the structure of the deal – whether they are looking to acquire assets or shares and what format. This will affect virtually every aspect of the acquisition agreement. In certain circumstances, it may be necessary to make certain steps prior to the sale, for instance, isolating Target assets into a company where shares could be purchased.
Once the initial step has been completed, the next step is due diligence, which is a deep examination of the target’s essential information, including financial, operational and commercial information. This is the most time-consuming component of an M&A. A thorough due diligence exercise can help a buyer comprehend the full potential risks and rewards of a deal. It may also reveal unexpected or unintended liabilities that could force the buyer to negotiate a revision data room M&A of the price, indemnities or terms to the purchase agreement.
After conducting due diligence, parties typically draft an agreement known as a letter-of-intent (or a ‘term sheet’,»heads» of terms,’ or heads’ of agreement) that describes the main elements of the deal as well as its timeframe. It will typically include an area referred to as «representations and warranty» in which each party demonstrates that the information they shared during negotiations is correct. This is to reduce the chance of misinterpretations or misunderstandings that could lead to expensive legal disputes after the agreement has been signed.
The term sheet will include the commitment of each party to maintain the confidentiality of information throughout the M&A transaction. This is vital to stop sensitive and confidential business information from getting leaked to rivals or other parties interested in the deal until it is completed. M&A lawyers can assist in the formulation of comprehensive confidentiality clauses that are binding for both parties.
The final step involves the signing of a contract that confirms the key terms and dates of the M&A transaction. It is often known as the «purchase agreement or acquisition agreement’. The final agreement is usually subject to certain closing requirements, for example the successful complete of all financial and legal due diligence as well as the obtaining of regulatory approvals. M&A lawyers can assist in negotiating these terms and ensure that the agreement is legal in the event of any dispute or breach.