Mergers and Acquisitions (M&A) Agreements
Companies that decide to combine their businesses may enter into a merger agreement. This agreement will detail the financial terms of the merger, and how the companies will comply with the various corporate formalities. The merger agreement may provide for contingencies, such as stockholder approval or antitrust clearance, and may also include provisions in the event one or both parties seek to terminate the merger.
Mergers and acquisitions (M&A) are both aspects of strategic management, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities. From a legal point of view, a merger is a legal consolidation of two companies into one entity, whereas an acquisition occurs when one company takes over another and completely establishes itself as the new owner. Either structure can result in the economic and financial consolidation of the two entities.
Types of Merger
There are many types of mergers and acquisitions that redefine the business world with new strategic alliances and improved corporate philosophies. From the business structure perspective, some of the most common and significant types of mergers and acquisitions are listed below:
- Horizontal Merger : This kind of merger exists between two companies who compete in the same industry segment. The two companies combine their operations and gains strength in terms of improved performance, increased capital, and enhanced profits.
- Vertical Merger: Vertical merger is a kind in which two or more companies in the same industry but in different fields combine together in business. In this form, the companies in merger decide to combine all the operations and productions under one shelter.
- Co-Generic Merger: Co-generic merger is a kind in which two or more companies in association are some way or the other related to the production processes, business markets, or basic required technologies. It includes the extension of the product line or acquiring components that are all the way required in the daily operations.
- Conglomerate Merger: Conglomerate merger is a kind of venture in which two or more companies belonging to different industrial sectors combine their operations. All the merged companies are no way related to their kind of business and product line rather their operations overlap that of each other. This is just a unification of businesses from different verticals under one flagship enterprise
Acquisition refers to the process of acquiring a company at a price called the acquisition price or acquisition premium. The price is paid in terms of cash or acquiring company’s shares or both.
There are two types of business acquisitions, friendly acquisition and hostile acquisition. In a friendly acquisition, a company invites other companies to acquire its business. In a hostile acquisition, the company does not want to sell its business. However, the other company determined to acquire the business takes the aggressive route of buying the equity shares of the target company from its existing shareholders.
Acquiring an existing business enables a company to speed up its expansion process because they do not have to start from the very scratch. The target company is already established and has all the processes in place. The acquiring company simply has to focus on merging the business with its own and move ahead with its growth strategies.
Following are some of the important steps in the M&A process
- Merger and acquisition process is the most challenging and most critical one when it comes to corporate restructuring. One wrong decision or one wrong move can actually reverse the effects in an unimaginable manner. It should certainly be followed in a way that a company can gain maximum benefits with the deal.
- Business Valuation: Business valuation or assessment is the first process of merger and acquisition. This step includes examination and evaluation of both the present and future market value of the target company. A thorough research is done on the history of the company with regards to capital gains, organizational structure, market share, distribution channel, corporate culture, specific business strengths, and credibility in the market. There are many other aspects that should be considered to ensure if a proposed company is right or not for a successful merger.
- Proposal Phase: Proposal phase is a phase in which the company sends a proposal for a merger or an acquisition with complete details of the deal including the strategies, amount, and the commitments. Most of the time, this proposal is send through a non-binding offer document.
- Planning Exit: When any company decides to sell its operations, it has to undergo the stage of exit planning. The company has to take firm decision as to when and how to make the exit in an organized and profitable manner. In the process the management has to evaluate all financial and other business issues like taking a decision of full sale or partial sale along with evaluating on various options of reinvestments.
- Structuring Business Deal: After finalizing the merger and the exit plans, the new entity or the take over company has to take initiatives for marketing and create innovative strategies to enhance business and its credibility. The entire phase emphasize on structuring of the business deal.
- Stage of Integration: This stage includes both the company coming together with their own parameters. It includes the entire process of preparing the document, signing the agreement, and negotiating the deal. It also defines the parameters of the future relationship between the two.
- Operating the Venture: After signing the agreement and entering into the venture, it is equally important to operate the venture. This operation is attributed to meet the said and pre-defined expectations of all the companies involved in the process. The M&A transaction after the deal include all the essential measures and activities that work to fulfill the requirements and desires of the companies involved.
We offer the following services with regards to merger and acquisition:
- Assessment of the business potential
- Company valuation
- Budgeting and controlling finances
- Brand valuation
- Preparing the agreement
- Structuring strategies
- Identification of possible threats and risks
- Structuring of tax deal
- Evaluation of policies
- Sale forecasting
- Corporate training
- Implementation of new technologies
- Offering enhanced business knowledge
- Strategic planning
- Specific training on various important models
- Establishments of entities
- Handling both inbound and outbound transaction
- Planning exit
Merger agreement is a contract that comprehensively lists down all details governing the merger of one or more companies. It is a main document that is legally binding on all the parties to the contract. To make it enforceable, the agreement has to be approved by and duly signed by the authorized parties. It can be cancelled under circumstances where any party fails to comply with the laid down terms and conditions.
The agreement should take into account all possibilities and lay down the plan of action for the same. The legal terminology should be correctly and carefully used. Moreover, any spelling mistake in the names can nullify the contract.
Some of the important components of the agreement are:
- Agreement date: It is the date on which the agreement became enforceable.
- Names of the merging parties: Complete names of all the companies merging their business.
- Type of industry: It refers to the industry in which the merger is taking place. For instance, merger of two drug-making companies belong to the industry Biotechnology & Drugs.
- Type of sector: In the above example, the sector is Healthcare.
- Jurisdiction: It is important to identify the laws governing the jurisdiction
- Other important details like members of the management, valuation of shares, liability of the members, valuation of tangible assets, etc.