The M&A Transaction Process

A merger and acquisition is the merger or acquisition of two businesses. The aim is to gain market share or increase profitability through access to new products, technologies or markets.

The M&A process is complicated, often with significant legal, tax and regulatory issues to take into consideration. In a typical deal, the data room M&A parties first decide on the structure of the deal, such as whether they want to acquire assets or shares and in what form. This will affect every aspect of any subsequent acquisition agreement. In some cases it could be necessary to take pre-sale steps like separating the Target assets into a new company whose shares are then sold.

Once the initial step has been reached, the next stage is due diligence, a deep examination of the target’s important information, including financial, operational and commercial data. This is the most time-consuming component of an M&A. A thorough due diligence exercise can help buyers comprehend the full potential risks and rewards of a deal. It could also reveal unintended or unexpected liabilities, which could lead to the necessity of negotiating revised prices, indemnities, or other terms to the agreement.

After due diligence, parties will typically draw up documents called a letter intent (or ‘term sheet’, ‘heads or terms’ or ‘heads of agreement’) setting out the fundamental elements of the agreement and its timing. This will usually include the section titled “representations and warranty” where each party acknowledges that the information provided during negotiations is true. This will reduce the chance of misinterpretations, or miscommunications that could result in expensive legal disputes after the deal is concluded.

The most important element of the term sheet will be the agreement of each party to maintain confidentiality throughout the M&A process. This is essential to avoid sensitive and confidential business information from being released to the competitors or other parties involved in the transaction until it is completed. M&A lawyers can assist in drafting comprehensive confidentiality policies that are binding for both parties.

The signing of an agreement that outlines the key conditions of the M&A deal and the date is the final step. It is usually known as a “purchase agreement” or “acquisition contract’. The final agreement is typically subject to certain closing requirements, for example the successful complete of all legal and financial due diligence, and the acquisition of the necessary regulatory approvals. M&A lawyers can assist in negotiating the terms and ensure that the agreement is legally binding if there is a breach or dispute.