The laws surrounding mergers and acquisitions (M&A) are intricate and numerous. The complex and lengthy process of M&As has prompted the emergence of its own field of specialization for legal teams and attorneys.

A merger (sometimes also called consolidation) is a transaction in which two companies combine to form a single new enterprise. In a merger, the two original businesses that came together as one cease to exist independently. An acquisition (also called takeover), on the other hand, is a transaction in which one company acquires the assets of another, and thereby ultimately absorbs the business that was purchased.

Acquisitions can be:

  • Public: the target company’s stocks are publicly traded
  • Private: the target company’s stocks are not publicly traded
  • Friendly: the target company perceives the acquisition as a positive event
  • Hostile: the target company perceives the acquisition as a negative event

Mergers and Acquisitions are regulated and overseen by the Federal Trade Commission as well as the Securities and Exchange Commission. Both agencies play vital roles in ensuring legal compliance and fair transactions.

It is in the best interest of all parties involved to secure competent legal representation to protect their respective interests in any merger or acquisition. Our experienced attorneys and legal counsel can assist your company in navigating all aspects of the M&A process.

Due Diligence

Due diligence is an important part of mergers and acquisitions that takes place prior to closing the deal. It ensures that the buyer is in possession of all relevant facts before final signatures are rendered. The due diligence process requires time for extensive reviews, as well as the procurement of a wide range of supporting documents and disclosures.

The process involves:

  • Auditing the target company’s financial history, working capital, expenditures, and more
  • Investigating tax filings and any lawsuits that may be pending, threatened, or settled
  • Verifying company structure, complexity, franchise agreements, all contractual agreements (supplier, affiliate, etc.)
  • Anticipating current or future tax liability that may have been assumed in or created by the exchange

The goal of due diligence is to obtain a detailed picture of the target company to provide the buyer with all the necessary information needed to make educated decisions when it comes to strategic fit and negotiations. An experienced attorney can help your company obtain and interpret the relevant documents.

Purchase Agreements

A purchase agreement is a legal document in which a merger or acquisition is memorialized. It contains the finalized details of the transaction, its terms and conditions, and all parties must be fully aware of and agreeable to its contents.

A typical purchase agreement consists of multiple sections, including:

  • Definitions
  • Execution provisions
  • Representations, warranties, and schedules
  • Indemnifications
  • Interim and post-closing covenants
  • Closing conditions
  • Break-up fees
  • Tax provisions

The purchase agreement is the final contract between the parties and, once signed, legally binding. Legal counsel knowledgeable in the area of M&A ensures your company enjoys full legal protection as you sign the purchase agreement, as well as in the event of future disagreements or challenges.

Escrow Agreements

An escrow agreement is another key document in the M&A process. It is typically drawn up toward the final stages of the transaction but can be completed sooner. The escrow agreement has one or more of these important functions:

  1. To ensure that each party fulfills its obligations, even if the deliverable agreed to in the purchase agreement cannot be executed immediately upon signing.
  2. As “proof of funds” to show the availability of the financial means required to fulfill the purchase agreement.
  3. As a retainer that holds part of the purchase price (between 10-25% in many cases) for a warranty period.

Essentially, an escrow agreement provides a safety net that holds the other party accountable and reduces the risk of failure to deliver or contract non-completion. Our attorneys have many years of combined experience in drafting escrow agreements that protect your company’s interests.

Mergers and acquisitions are highly complicated business transactions with many moving parts. The competent and seasoned M&A team at Harold “Hap” May Attorneys at Law will guide you every step of the way, protect your investment, and ensure that your company is positioned to its greatest advantage.