Understanding Mergers & Acquisitions (M&A)
grow your business through mergers & acquisitions
So, why Merge or Acquire?
All mergers and acquisitions have a common goal: to create synergy that helps their business values grow and be greater than the two companies working individually. Now synergy takes the form of revenue enhancement and cost savings. By merging or acquiring, you would hope to benefit from the following:
- Becoming bigger: Many companies use M&A to grow in size.
- Preempted competition: This is one powerful motivation for mergers and acquisition. The point is to snap up a company with an attractive company asset before the competitors, so it generally brings better results in the market.
- Tax benefits: This technique involves, for example, a U.S. company buying a smaller foreign competitor and moving the merged entity’s tax home overseas to a lower-tax jurisdiction, in order to substantially reduce tax bills.
- Improved market reach and industry visibility: Companies buy companies to reach a new target and grow revenues and earnings. A merger can expand two companies’ marketing and distribution
The key to any successful transaction is documentation and checklists. Although some transactions do have a simultaneous signing and closing, most M&A transactions have the closing follow a period of time after the signing. There are usually various regulatory, corporate, and third-party consents that need to be obtained before completing a transaction. The parties, particularly the seller, may not want to begin the process of obtaining these consents until they have a signed agreement.
The first step towards a successful closing of a private M&A transaction is the preparation of a comprehensive closing checklist. This is a list assigning responsibility for actions to be taken and documents to be delivered at, on or before the closing. It is important to an organized closing and should be done as soon as possible:
When preparing and reviewing the closing checklist:
- Review the purchase agreement for all closing conditions
- Make sure the closing checklist includes all of the documents required to effect the transfer of assets or stock or the merger:
- For asset deals, make sure all the documents needed to transfer each of the acquired assets are included and identify the documents that need to be filed with a governmental agency (such as the county clerk’s office for real estate deeds and the US Patent and Trademark Office for assignments of any patents or registered trademarks).
- For stock deals, ensure all the stock certificates delivered evidence the number of shares being transferred and that each is accompanied by a stock power.
- For mergers, make sure there is a certificate of merger to be filed in each applicable jurisdiction and that each certificate complies with applicable statutory requirements.
- Review applicable regulations for any regulatory filings and consents that are necessary before the closing:
- Certain mergers and acquisitions require the filing of pre-merger notification forms with the Federal Trade Commission and the Department of Justice in compliance with the Hart-Scott-Rodino Antitrust Improvements Act of 1976
- if a target company is in a regulated industry (for example, energy, healthcare, insurance, or banking), consents will likely be needed from the applicable regulatory authority.
- Review due diligence findings for closing conditions and information contained in the disclosure schedules, such as:
- any third party consents that may be required.
- liens that may need to be released and underlying debt obligations that need to be paid.
- any other defects in title to the assets of the target company (and the stock of the target company if the transaction is a stock deal) that need to be fixed before the closing.
- Review applicable corporate statutes, organizational documents, stockholders’ agreements, and other similar documents to determine what corporate consents or actions (such as board and stockholder consents) are necessary to effect the transaction.
- If any of the parties is a public company, review applicable securities laws and disclosure rules of any applicable stock exchanges for any filings or other disclosures that are necessary for connection with the transaction (such as press releases and SEC filings).
- Add any documents related to the payment of consideration (for example, memos detailing the flow of funds at the closing and any documents necessary to assist the buyer in obtaining financing (if the buyer is financing the purchase price)).
- Add any documents that the parties agree to add during the negotiation process, such as:
- escrow agreements
- estimated balance sheets
- side letters.
- Assign the party or parties responsible for preparing or obtaining each item on the closing checklist and track the status of each item on a regular basis. It is helpful to have meetings or conference calls with all of the responsible parties on a weekly or daily basis (frequency usually increases as the closing date approaches) to keep track of the status of the various closing items.
- Add any documents or actions that need to be delivered or taken after the closing.
M&A transactions almost always offer viable opportunities to achieve cost synergies and drive efficiency. But growth-oriented companies should not allow themselves to become trapped by a short-term focus and simply attempt to save their way to the deal success target. Success in growth-oriented M&A hinges on taking a disciplined approach based on a real understanding of the actions and initiatives required to drive short- and long-term value.
Whatever the form, the decision to combine must make financial sense. Furthermore, Khinda Wilson, is best suited for this job because of our high expertise on multi-jurisdictional matters.
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*The information presented in this article does not constitute legal advice and is not intended to create an attorney-client relationship. The information presented in this article is not tax advice and you should consult a CPA or other qualified accounting and tax professional to discuss your specific circumstances.