The M&A Transaction Process

A m&a transaction is the acquisition or merger of one company by another. The aim is to increase market share or profitability by gaining access new products, technologies, or markets.

M&A is a complex procedure with a variety of legal and tax issues. In a typical transaction the parties first agree on the structure of the deal – whether they wish to acquire assets or shares and what shape. This will impact virtually every aspect of the acquisition agreement. In some cases it may be necessary to make certain steps prior to the sale, such as isolating Target assets into a company that could then be purchased.

Once this initial step is agreed, the next step is due diligence, a deep review of the Target’s important information, including financial, operational and commercial data. This is the most time-consuming aspect of an M&A. A thorough due diligence exercise can help buyers to understand the full risk and rewards of a proposed deal. It can also reveal unintentional or unexpected liabilities, resulting in the need to negotiate a revision of the price, indemnities or conditions to the purchase agreement.

Following due diligence, the parties will typically draw up an agreement called a letter of intent (or term sheet, ‘heads or terms’ or ‘heads of agreement’) setting out the essential elements of the agreement and the timing. The document will typically contain the section titled “representations and warranties” where each party affirms that the information provided during negotiations is accurate. This will help reduce the chance of misinterpretations, or mistakes that could lead costly legal disputes after the deal is concluded.

The term sheet will include the agreement of each party to protect the confidentiality of information throughout the M&A transaction. This is essential to stop sensitive and confidential business information from being leaked to competitors or other parties interested in the deal until the transaction is completed. M&A attorneys can assist in the creation of comprehensive confidentiality clauses that are legally binding for both parties.

The last step is the signing of an agreement which confirms the key terms and timing of the M&A transaction. This is often described as a “purchase agreement” or “acquisition contract’. The final agreement is usually subject to certain closing conditions, like the successful completion data room M&A of all financial and legal due diligence and the obtaining of regulatory approvals. M&A attorneys can assist in negotiating the terms and make sure that the agreement is legally binding in the event there is a breach or dispute.