Mergers and acquisitions (M&A) refer to the consolidation of multiple business entities and assets through a series of transactions. Earlier, Anand Jayapalan had spoken about how the completion of a merger can involve a large number of details, especially if the deal has an international component.
Here are some of the important phases of a merger and acquisition deal:
- Strategy development: An M&A strategy can assist companies in setting clear expectations for everyone involved. Even though each and every deal tends to be unique, its strategy must address what a company hopes to achieve with the deal and how it will get there.
- Target identification: Legal teams would have to search and evaluate potential target companies during this phase. Having a good understanding of who and what is involved, as well as how the pieces are related will help guide the due diligence process. The target identification process can be broken down into two phases, determining the constituents and identifying any subsidiary or related entities. If one is planning for a general merger, identifying the target is extremely important, while in the case of a triangular merger, both the target and the subsidiary must be identified. Businesses should know about the subsidiary or related entities, industries they work in, and where they are located. It is vital to determine whether they are qualified to do business in other states and countries.
- Valuation analysis: In order to effectively value and determine the suitability of the target company in line with the M&A strategic plan, legal teams would need to access as much information possible in regard to the operations, financials, products and customers of the target companies. After the vital entities are known, the next step would be to figure out if they are in good standing and in compliance with all jurisdiction requirements. This can be a deal breaker if not. One must also assess whether the issues can be resolved and the time frame for moving forward.
- Negotiations: As the valuation models of the target company have been produced, one may present an offer and subsequently move onto the negotiation phase where terms are discussed in more detail.
- Conduct due diligence: This is among the most important and time-consuming phases of an M&A transaction. M&A due diligence involves detailed examination and analysis of the target company from both external and internal sources. This would help in verifying the value of the target company and identify its liabilities as well.
- Deal closure: With the competition of due diligence, the parties involved need to make the final decision on moving forward to execute the transaction. This phase comes with several responsibilities for the legal teams. Corporate filings should be made in advance of the closing date. These include issuance of bring-down letters, ordering of good standings, amendments and merger filings.
- Financing and restructuring: Even if financing options are considered during the M&A planning process, the final arrangements are usually finalized once the purchase and sale agreement is completed. To prevent delays and ensure the deal is closed smoothly, an independent director or manager, springing member, or special member may be appointed.
Earlier, Anand Jayapalan had discussed how the entire M&A process requires precise timing. In case a compliance or transactional detail falls through the cracks, a company may end up facing delays, penalties, and other issues.
