What is a merger? As the name might suggest it is where two businesses merge their assets. The result of two companies doing this is that they become one new company, or 'surviving business'. The non-surviving company becomes a part of the surviving company, their shares are converted to shares in the new company and shareholders become shareholders in the surviving company. In comparison, an acquisition is where one company 'acquires' another - this may be done through the purchase of stock or assets. A share purchase acquisition is where one company buys the shares of a different company. The company whose shares are bought, the 'target company', becomes a subsidiary of the purchasing company. A hostile takeover occurs when the target company is publicly traded and the shares are bought by another company, even if the shareholders oppose the purchase.
There are generally two types of mergers and acquisitions deals - these are buy-side deals and sell-side deals. Sell-side deals occur when a client wants to sell their company. This could be for a number of reasons, the client may simply no longer want to run the company or perhaps the company is close to bankruptcy. The decision to sell will lie with the board of directors of the company unless the company is owned by a private equity firm. Buy-side deals are, rather obviously, the opposite. They are when a client wants to buy a company and want help either finding a suitable company to buy or help carrying out the transaction. Mergers and acquisitions are a good way for small businesses to expand into new arenas and gain entry into new markets. This is because the company they are buying may already have these connections.
Buy-side and sell-side deals are either broad processes or targeted processes. A broad process is where the client who either wants to buy or sell has not yet decided on the exact buyer or the company they want to buy. In a broad process the client is shown a large group of potential buyers or potential acquisitions (depending on whether they want to buy or sell). In a targeted process, the client has either already decided on a buyer/company or they are already talking to the prospective buyer or company. You can have a targeted buy-side deal or a broad buy-side deal and you can have a targeted sell-side deal or a broad sell-side deal. When undertaking a broad process, the aim is to try and garner as much interest as possible from buyers and sellers - with a sell-side deal this will usually turn into some of auction.
Mergers and acquisitions can be a complicated process - and this is where the mergers and acquisitions solicitors come in. When a company merges with another due diligence must be carried out. This is the examining of the finances and legal status of the other company. M&A Solicitors will usually be the ones to carry out due diligence. They will check that the information is accurate and that nothing is being hidden. They will investigate whether the other company has any debts, legal claims or intellectual property liabilities as any of these can be detrimental to the surviving company. The law surrounding M&A can be tricky to understand and the contractual documents, depending on the size of the business, can be hundreds of pages long so it is usually advisable to involve solicitors who specialise in mergers and acquisitions in the transactions.
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