Business mergers and acquisitions (M&A) happen all the time. The public may only see a quick email announcement or news article updating the world about the M&A. We don’t see all the behind-the-scenes work it took to get the merger or acquisition successfully completed. Joining companies successfully takes diligent work from multiple parties, and one of these parties is an M&A attorney.
Mergers and acquisitions attorneys play one of the most important roles in these transactions. They have several tasks before, during, and after each M&A transaction. Their expertise and advice are keys to completing these transactions.
What are mergers and acquisitions?
Mergers and acquisitions aren’t the same, but they’re often mentioned together. Both of them combine two or more businesses into one business, but they do this in different ways.
In a merger, two companies combine to create a new company. In an acquisition, a larger company absorbs a smaller company. You can read more about the differences between mergers and acquisitions here.
Mergers and acquisitions can happen for a variety of reasons. Sometimes companies join together to increase their market share or add assets like patents or other proprietary knowledge. Whatever the reason, most mergers or acquisitions happen with the hopes of increasing profit, decreasing expenses, or both.
What’s the mergers and acquisitions attorney’s role in an M&A transaction?
Both types of transactions are very involved and can take months to complete. A good M&A attorney is a valuable resource throughout the transaction, not just at the end when you’re ready to sign paperwork.
At the start of the transaction, they can help you draft or review a letter of intent. Even though these aren’t legally binding, they set the tone for the transaction. Errors in the letter of intent could impact the rest of the transaction.
Once both parties agree on pursuing a sale or merger, your attorney should conduct due diligence on your behalf. They also help you manage legal risks, draft contracts, and help you foresee and mitigate legal and regulatory risks. Each of these steps is incredibly important to ensure the transaction succeeds. A good M&A attorney can walk you through them.
Here’s a brief overview of what your attorney should do on your behalf and why they are so important.
Conducting due diligence
Purchasing or merging with another company is a major decision. Hence, conducting due diligence in M&A is the first step to ensure it’s a good choice. This is especially true if you’re buying or merging with another company. However, even selling companies conduct their own due diligence. The due diligence process typically starts after both parties sign a letter of intent.
Some companies may use a confidential information memorandum (CIM) in the initial steps of a merger or acquisition. This may contain in-depth information about the company and even includes information that isn’t available to the public. However, since the CIM is a marketing tool, it may not reveal everything about the company — especially not anything negative.
During due diligence, both sides gather and verify information that is important to the transaction. While they both may be interested in the transaction, the parties use this information to ensure they are going into the transaction knowing every detail and taking risks and rewards into account.
Some of the information involved in due diligence includes:
- Auditing the target company’s financial information
- Understanding the company’s technology, patents, and other intellectual property
- Information about current employees and operations
- Marketing strategies, market base, historical and projected sales records
- Current contracts or commitments/agreements in place
This is certainly not an exhaustive list, and the M&A attorney will have additional questions and help guide the process to ensure success.
Due diligence doesn’t just look at the financial side of the transaction, such as checking assets and liabilities (although that’s obviously important). It looks much deeper, and a good M&A attorney will probe and find the information you need to know before closing the transaction. Other parties, such as accountants and investors, may also need to be involved in the due diligence process.
Managing legal risks
Another role of the M&A attorney is to help manage legal risks for both parties in the transaction. Merging with another company, or purchasing one, can involve a transfer of risk. That’s no problem when both parties are aware of the legal risks involved, but secret pending lawsuits or hidden past litigation can be a nasty surprise if they come to light after the agreement is signed.
Discovering, managing, and negotiating risks is part of the M&A attorney’s role. They will look for past bankruptcies, past and pending litigation, liens, and other actions that could cause financial harm to the parties in the transaction. They can lean on their experience and expertise to anticipate legal risks that can arise and help you plan for them in advance.
If legal risks do arise, that doesn’t mean the deal is off. The attorney can help draft agreements to mitigate risk or work with both parties to negotiate the terms of the exchange in light of the discovered risks.
Drafting and reviewing contracts and agreements
Mergers and acquisitions are legally complex and can involve many different agreements. The first few agreements, like a nondisclosure agreement (NDA), a letter of intent, and exclusivity agreements, may be written and signed while the final agreement is still months away.
Even these preliminary agreements can shape the negotiation process, so it’s important to have expert advice before signing any of these agreements. Depending on which side of the transaction you’re on, your M&A attorney will draft and review each agreement, making sure it’s in your best interest before you sign it. Your attorney can suggest changes to make sure none of the provisions catch you off guard or force you into difficult situations.
During the due diligence phase, companies may share information like trade secrets or other proprietary information. You can find an NDA template online, but having an M&A attorney on your side during the process will make sure you stay fully protected throughout the negotiation process, even if it doesn’t result in a closed deal.
Other contracts your M&A attorney writes could include purchase agreements, confidentiality agreements, cost-sharing agreements, or any other type of agreement your attorney may suggest.
Advising clients on legal and regulatory issues
As if jumping through all of those hoops weren’t enough, there also may be regulatory issues to manage as a part of a merger or acquisition.
Strict antitrust laws, such as the Clayton Act, prohibit mergers and acquisitions that result in less marketplace competition. The Federal Trade Commission (FTC) monitors transactions that may result in a violation of antitrust laws, and companies planning to go through a merger or acquisition may be investigated by either the FTC, the Antitrust Division of the U.S. Department of Justice, or their state attorneys general.
The FTC wants to prevent mergers that may lessen competition or create a monopoly. Even if the merger doesn’t create a monopoly when the deal is signed, “Merger law is forward-looking: it bars mergers that may lead to harmful effects,” according to the FTC. Your M&A attorney can advise you on the likelihood of investigation and also help you prepare your case if needed.
Regulatory issues may also occur in the day-to-day practices of either business, such as environmental hazard concerns, employment concerns, and taxes. Environmental concerns may include pollution from a manufacturing plant, site development, and even working around protected wetlands or endangered species that may be on property acquired in the transaction.
Employment concerns can include complying with existing laws such as overtime pay or the Affordable Care Act. They might also include integrating existing employees into a new workplace environment or severance packages for employees who will be let go as part of the transaction.
Major purchases also involve taxes, and an M&A attorney may work with a tax attorney to ensure you are aware of any tax implications as a result of the transaction.
Final thoughts on the role of mergers and acquisitions attorneys
Mergers and acquisitions are complex transactions. Even an acquisition that seems simple on the surface may take months of preparation and investigation and complicated legal agreements to ensure everything is handled properly. Find out if you really need an M&A attorney to sell a business.
M&A attorneys do more than just make sure the final paperwork is completed correctly. They can help you through the entire merger and acquisition process. Besides crafting and reviewing documents, they can also help mediate disagreements and assist with the negotiation process.
Even after the deal closes, M&A attorneys may continue working to ensure that both companies are upholding their side of the deal. They may assist with company integration and reorganization beyond the sale date to ensure the continued success of the venture.
Attorneys specializing in mergers and acquisitions have unique experience and knowledge. Even the most savvy business owner can miss key aspects of merging with or acquiring another business. Including an M&A attorney from the very start of the transaction, even before a letter of intent is signed, ensures your interests are represented from the beginning to the end of the process.