Mergers and acquisitions, also known as “M&A,” relates to the transfer or consolidation of equity and/or assets between the ownership of two companies. A merger is when two companies join together. An acquisition is when one company buys another company. In the business world the two terms are often interchangeably used; so much so that the term “M&A transaction” has become the go-to term to describe mergers and acquisitions. Mergers and acquisitions are used strategically by companies to increase profit, become more competitive in their field, and improve their bottom line.
There are myriad different types of M&A transactions depending on the intended purpose of the acquisition or merger. Three of the more important and common M&A transactions include:
A strategic merger occurs when the acquiring company sees long term strategic value of the target company. The resulting M&A between the acquiring and target company is expected to increase market share, broaden the customer base, and enhance the corporate strength of business for the acquiring company. An example of a strategic merger is the acquisition of Whole Foods by Amazon. In addition to gaining a major foothold in the grocery shopping business, Amazon now had access to a wealth of Whole Foods’ data regarding consumer groceries shopping practices and patterns.
An acqui-hire is an acquisition where the acquiring company seeks to acquire the target company’s talent, rather than their products. This type of M&A is particularly in vogue in the Silicon Valley’s tech industry where major players like Facebook, Apple, Twitter, Google and others acquire small start-ups to harvest their talent and add expertise in particular areas to their workforce.
Merger of equals is exactly as it sounds: a combination of two companies of nearly equal size. It was during the era of the dot com bubble that some of the largest transactions of mergers of equals took place. These included the mergers of AOL and TimeWarner, Citicorp and Travelers Group, and SmithKline Beecham and Glaxo Wellcome.
The M&A process can be very lengthy and complex, especially when it involves two large companies. There are a lot of moving pieces involving many specialized individuals including lawyers, accountants, tax advisors, and other professionals from both sides. That said, elements of an M&A transaction generally remain the same regardless of acquisition or merger size.
The first step in an M&A is a letter of intent. The letter of intent signals an initial understanding from both parties. While this letter does not bind the parties to commit to the transaction, it will often include confidentiality and/or exclusivity obligations so that both parties will have a chance to do their due diligence in considering the transaction. For a company being acquired, the board of directors advises the company’s shareholders of the company’s recommended vote and then sends out a proxy to all shareholders. The shareholders vote on whether to sell the company. Once an M&A transaction has been approved, both companies will file paperwork with the U.S. Securities and Exchange Commission outlining the terms and conditions and other details of the sale. The target company is bought and integrated into the acquiring company and the acquired company’s shareholders are compensated.
Mergers and acquisitions law is a subfield within the broader realm of corporate law. The legal issues in M&A transactions will vary depending on whether the transaction is friendly or hostile. Two companies engaging in an M&A transaction have a whole minefield of legal issues to contend with including federal regulations and antitrust laws, shareholder rights, corporate restructuring, dealing with the SEC, etc. Additionally, there are joint and several liability issues to consider for the target company’s stockholders, tax consequences, and many other legal and business-related elements to sort out.
A mergers attorney or M&A lawyer is an advocate for their corporate client throughout the M&A transaction process. Attorneys in M&A identify the client’s business objectives and legal issues, then build a “road map” for the client’s specific transaction from start to finish. The M&A lawyer will work with tax attorneys to determine the tax implications of the transaction and whether special structuring is required. This lawyer will also work with antitrust attorneys to assess regulatory obstacles and ensure regulatory approval. An M&A lawyer advises the client on deal and negotiating tactics and conducts due diligence on the other side. A mergers attorney for the target company will advise the client on whether to negotiate, refuse the buyer’s overtures, sell, or do a deal with another company.
A merger or acquisition comprehensively impacts your company at virtually every level. The financial implications alone for your business are substantial. Hiring a mergers attorney to make sure your company is in compliance with each part of the M&A process is a fiscally responsible, strategically prudent decision. From assisting with smooth corporate restructuring to laying out shareholders rights, a mergers attorney is a necessity if your company is party to an M&A transaction.