By: John Glover (MBA)
Businesses in pursuit of expansionary motives often enter into high-level discussions with other organizations. Such collaboration could be a merger or outright acquisition. They afford a comparatively less costly means of achieving growth by leveraging on the already established structure, technology and customer base of other industry players.
However, such collaborations often involve lots of technicalities in formulating the appropriate legal, financial and operational framework on which the continued existence of the resultant new single business entity will be based.
This article focuses on the legal parameters for undertaking mergers and acquisitions (M&A), emphasizing the important role that a business attorney experienced n M&A plays in the process.
Definition of Merger and Acquisition
A merger occurs when two or more separate business entities combine to form a single joint company. This is usually done to gain market advantage, broaden their production line or to achieve economies of scale. On the other hand, acquisition is the takeover of a company by another, usually to eliminate competition or gain access to a new market. Both are far-reaching business decisions that require careful planning and intense deliberations.
The Role of a Business Lawyer in M&A
The importance of the input of a business lawyer in all stages of M&A transactions cannot be over-emphasized. The role of a business attorney includes;
Initial Consultation and Planning
The ground stage of any M&A transaction begins during the first consultation with a business lawyer. Here, the client’s objective is discussed and analyzed. The attorney then guides them from a legal perspective whether to go for a merger or an acquisition.
During this stage, a business lawyer might help a client decide whether, for instance, to form a new LLC to be used in running the new business enty that emerges from the merger or acquisition.
Unveiling Potential Legal Risks in the M&A Transaction.
An important role of a business lawyer is the due diligence of meticulously analyzing all relevant documents and contracts to reveal potential liabilities and risks. Employment contracts, intellectual property rights, pending litigation issues and existing liabilities are reviewed to determine the viability of the M&A transaction so professional advice can be given on the viability of the joint venture or takeover.
Drafting, Reviewing, and Negotiating M&A Agreements
One of the pronounced roles of a business lawyer is drafting, reviewing and negotiating M&A agreements. These agreements spell out the terms of the transaction. Lawyers ensure the provisions are water-tight catering fully to the interest of their clients and minimizing their risks. The drafted agreements are negotiated between the attorneys of both parties until a final draft which will be the working document is agreed upon. Important aspects such as purchase price, payment terms, merger agreements, representations, warranties and indemnities must be fully captured in the agreement.
Facilitating Smooth and Efficient M&A Transactions
M&A transactions require a high level of expertise and usually involve numerous critical stakeholders. A business lawyer will coordinate with all stakeholders, ensuring that the transaction proceeds smoothly and efficiently. The lawyer also must effectively resolve any legal issues that arise during the transaction thereby avoiding delays or complications.
Ensuring Compliance with Federal and State Regulations
Another important role of business lawyers is to ensure that the M&A transaction and the business structure formed comply with the extant laws and regulations governing M&A in the country. Antitrust laws, tax laws, securities acts and anti-takeover clauses (where applicable) are all taken into account when executing M&A transactions. The lawyer can also undertake the filing of all necessary documents to the relevant government agencies.
Handling M&A Tax matters
Business attorneys can be saddled with the responsibility of liaising with tax experts to develop the necessary legal strategies to reduce the tax liability of clients. They also guide in choosing the appropriate tax structure for the transaction as well as ensure that all necessary tax filings are appropriately done.
Resolving Employment and Labor Issues in M&A
M&A transactions often involve changes in employment and labor relations. A business lawyer will help effect these changes, resolving any potential issues and ensuring compliance with employment laws and regulations. Expert guidance on issues related to employee contracts, benefits and severance packages is also provided by the legal professional. These functions are necessary so as not to violate any employment laws or treat employees unfairly.
Intellectual Property Rights Protection during M&A
The business lawyer facilitates the legal transfer of intellectual property rights, identifying any possible issue and resolving such in the interest of the client. This ensures that all intellectual property rights are duly acquired based on a legally-compliant process.
Post-Merger Integration
The role of a business lawyer does not terminate with a successful M&A transaction. Post-merger integration is a technical phase where the businesses combine their operations. An operations specialist can assist in this transition by ensuring that all legal aspects are seamlessly integrated.
Final Thoughts
A business lawyer is indispensable in securing successful M&A transactions. From due diligence to post-merger integration, their expertise covers all aspects of the process. Business owners must recognize the importance of involving a skilled business attorney in carrying out these high-level transactions. This helps to avoid failing on compliance issues and ensures that the M&A transactions run smoothly with no legal barricade that will threaten the survival of the new business entity formed.
Disclaimer: The information provided in this article is intended for general informational purposes only and does not constitute legal advice. Every business transaction, particularly mergers and acquisitions (M&A), involves unique circumstances that require specific legal guidance. Readers should consult a qualified business attorney or legal professional before making any decisions related to M&A transactions. The author and publisher disclaim any liability for any actions taken based on the content of this article.
Published by: Nelly Chavez
