Why Hiring A Business Attorney Is Essential For Any Merger Or Acquisition

Undertaking any major business transaction presents significant risk – but also unique opportunities – for your business. Whether you are contemplating a joint venture, merger, acquisition, or divestiture, the key to the success of your transaction is obtaining legal advice from an experienced business attorney.

Your attorney will play a pivotal role throughout the transaction, from negotiating the deal to finalizing its implementation. They will help you to avoid the pitfalls that come with commercial restructuring and ensure that your enterprise’s interests are robustly protected. With a strategic, skillful business attorney representing you throughout the process, you can look forward to taking your business from strength to strength.

What Are Mergers and Acquisitions?

In essence, mergers and acquisitions are types of financial transactions that combine one or more businesses. There are numerous different types of transactions (in addition to mergers and acquisitions) that may be used to restructure or consolidate business interests, but over time, this area of law has come to be referred to simply as ‘mergers and acquisitions’ or ‘M&A law’.

In a merger, two existing businesses combine – or ‘merge’ – to become a single legal entity under one corporate name. Usually, the businesses that decide to combine are of roughly equal size and operate in the same markets. This is called a ‘horizontal merger’, but some mergers are ‘vertical’. A vertical merger occurs when one business merges with a leading supplier, so that both companies benefit mutually from increased supply chain control. Horizontal and vertical mergers are only two among multiple ways to structure a merger. The way a merger is structured largely depends on the existing business models and goals of the two merging entities.

In an acquisition, one business – typically a larger business – absorbs and takes over another business, which usually retains its name, branding, and operations. The business being acquired is often referred to as the ‘target’ entity. Acquisitions may also be horizontal or vertical, depending on whether the two entities play the same or different roles in a value chain. There are also many ways to finance an acquisition – the acquiring business can purchase the other business using cash, stock buyouts, an assumption of debt, or a combination of these.

The Role Of A Business Attorney In Mergers and Acquisitions

Given the above, it’s no surprise that M&A law is considered to be one of the most complex areas of legal practice. Your M&A lawyer will play a crucial role at each stage of the transaction, and it is important that you hire a business attorney with expertise in negotiating, structuring, and implementing commercial transactions.

1) Negotiating and Structuring the Deal

All commercial transactions begin with negotiation. Depending on the nature of the transaction, there are many things that will need to be negotiated before contracts can be drawn up for signature.

In the case of an acquisition, a key point for negotiation will be how the target entity is valued: there are numerous valuation methodologies used in M&A transactions, and each is likely to favor one party to the transaction more than another. How the transaction will be financed, what kind of payment structure will be used, the role of each business’s management following the transaction, and how business integration will be achieved are all key aspects of the deal that must be thoroughly negotiated beforehand.

Throughout negotiations, your business attorney will need to strike a balance between aggressively protecting your business’s interests to ensure a favorable deal is negotiated, and compromising when necessary so that the deal doesn’t collapse due to an unreasonable bargaining position. The negotiation phase usually concludes with the signing of a ‘term sheet’, which sets out fundamental points of agreement between the parties and serves as a blueprint for transaction documents yet to be drafted.

2) Pre-Transaction Due Diligence

One of the most important stages in any commercial transaction is the due diligence review. Due diligence is carried out by business attorneys, often with the assistance of accountants, and involves a rigorous assessment of all the legal and financial risks that could jeopardize the transaction.

For example, in the case of an acquisition, the acquiring entity’s attorneys will thoroughly investigate and assess the target entity’s records to determine:

• If it is engaged in any civil litigation or employment disputes;
• The key terms (including cancellation clauses) of any contracts to which it is currently a party;
• Whether it is compliant with the regulations applicable to its operations;
• Whether its ownership over its stated assets can be proven; and
• What its major liabilities are.

As part of this process, the target entity’s financials will be meticulously scrutinized. This process often takes months to complete, and when it is finished, your attorneys will prepare a due diligence report to highlight the major risks and liabilities associated with the target entity. The results of the due diligence will inform the final valuation of the target entity, and the kinds of warranties and covenants that will need to be included in the transaction documents to mitigate any risks identified.

3) Drafting and Reviewing Transaction Agreements

Once the fundamental terms of the transaction have been agreed in the term sheet and major risks highlighted through a due diligence review, transaction documents need to be drafted, reviewed. and signed. The specific contracts and documents required will depend on the nature of the transaction, but typical transaction documents include the sale and purchase agreement (SPA), shareholders’ agreement, disclosure schedule, board resolutions, and shareholder resolutions.

Whether your business attorney is drafting these agreements for the counterparty’s review or vice versa, it is essential that they ensure the agreements are legally valid, practically implementable, commercially sound, and, above all, that they protect your business from the risks identified during the due diligence process. Your lawyer will need to ensure that the representations, warranties, covenants, and indemnities included in the transaction documents will robustly protect your business from future risk and liability.

4) Regulatory Compliance

Your attorney will also need to ensure that the requisite regulatory approvals are obtained before your transaction is implemented.

For example, in the case of a merger of two companies that operate in the same market, the transaction will need to comply with Florida’s antitrust laws, which prohibit mergers that would result in market monopolies harmful to consumers. The transaction will need to be approved by the relevant antitrust authority before it can proceed. Depending on the circumstances, commercial transactions may also need to comply with relevant tax laws, securities regulations, industry-specific regulations, and the Florida Business Corporation Act.

5) Closing the Transaction

The final stage of a commercial transaction is referred to as ‘closing’. In this stage, the finalized transaction documents are signed, ownership of the target business and/or its assets and liabilities is transferred (depending on how the transaction is structured), compliance documentation is filed with relevant authorities, and a business integration plan is implemented. In some transactions, the closing process may last for weeks or months as the parties implement the transaction documents and fulfill their obligations to one another.

During the closing phase, commercial disputes may also arise if the deal is not implemented per the transaction documents, or the target business misrepresented its financial position or fails to honor a covenant. It’s essential that your business attorney is able to offer you representation in any commercial litigation that arises, whether personally or by bringing an experienced colleague onto the team.