Mergers and Acquisitions

Before starting to develop the topic, it is important to explain the differences between a merger and an acquisition:

Merger: This is the union of two companies, constituting a larger one. Both contribute their capital, their production materials, their clients, and their shareholders, and they generally both benefit from this operation. Sometimes both companies keep their names. Otherwise, this integration makes one of the two join the other.

Acquisition: In general terms, we can say that a large company buys a smaller one, which will then cease to exist. In this way, the acquiring company takes control of the other.

Some reasons why these operations are performed may be:

Company growth;
Asset expansion;
Increase in sales and market share;
For the benefit of the shareholder group;
Leadership in the market;
Competitiveness with another company in the sector, and preventing it from taking control.

In both cases, companies must carry out a prior market study, carrying out evaluations of the consequences that these operations may have.

The negotiations are long. It is necessary to analyze the modifications that each company must make, both to its assets and its liabilities.

Hire a business lawyer

This comprehensive analysis should be completed by a person who already has experience in the field. A business lawyer who will analyze the business situation of both companies is the ideal person.

The business attorney will report on advantages and disadvantages that may arise during the chosen process, as well as the consequences that may arise if the operation were to fail.

There are four aspects to consider prior to the operation:

Financial situation: Verify that the information provided on the balance sheets is correct at the time of merging with or acquiring the company.
Commercial situation: Check various aspects of corporate formation and development, which may include financial info, constitutive info, customer letters, contracts, intellectual property, insurance, industrial and/or intellectual property, licenses, etc.
Labor situation: Review of the status of workers and their compliance with contributions and insurance, which are duly registered.
Tax situation: Verify that there are no contingencies regarding these aspects and check the agreement with what has been declared.

Series of provisions that must be met

There are a series of provisions that must be met prior to performing either of the two operations.
First of all, we must set a goal, which is where we aim to carry out these negotiations. And once the plan is established, it is not advisable to depart from the strategy that our lawyer generally proposes to set the course of the transaction.

This planning and its development takes time and effort; it is not an easy task.

These operations always involve structural changes within the companies, and the main ones may be changes in assets, shares, or loans, which can cause substantial changes to personal assets.

The role of the business lawyer

A business lawyer must be competent in all matters relating to mergers and acquisitions. You must draft contracts and handle the papers and documentation presented by both companies.

First of all, we must consider the steps to follow:

Consider the capital made up of the assets of the company to be acquired, which is not only made up of shares, interests, or shares to be purchased, but also possessions such as real estate and land, among others.
Mergers are the unions of two or more organizations to form a company, increasing profits.

Once all the necessary information has been gathered, the results that may be obtained in the economic / financial development, the relationship of the clients and the intellectual property should be evaluated. This surely may change once the merger is consolidated.

Aspects to consider

Once the decision to merge the companies has been resolved, new aspects must be decided to take into account such as:

Establishing the name and location of the merged company.
Creating an organization chart where the structural situation of the new company is clearly detailed.
Laying out the style of administration.
Forming a new management.
Constituting the new business areas.
Forming work teams and establishing what the modifications will be.
Deciding the active markets, forming work teams, and the resulting products.
Planning of the new society, among others.
The Process is long and must be developed gradually. Below we will mention how a merger or acquisition initially evolves.

Approach between the parties

It is known that these are very big changes, and mutual consensus is the basis of all subsequent development in the formal steps to follow.

Contracts drawn up by the chosen professional will have to be signed, and any modification documented so that it is legally and clearly established, without overlooking the human, legal and tax aspects.

The goods and services offered must be highlighted, and an analysis report must be made of the impact of this operation on the competition, among others that are linked to the merger.

The drafting of all these agreements requires the presence, in some instances, of owners and shareholders. It will be essential to notify employees.

Obligations between client and advisor

Each company has its own advisor, who is closely related to the performance of each company. Once merged, they must be established and agree on how to work together and what will be the role of each one:

Services to provide.
Obligations of both parties.
Form and team of work.
Tentative schedule.
Present solutions in case of conflicts.

Management between the parties

For absolute clarity in the development and, above all, in the contribution of the information provided, which will be used for the future steps to follow, both parties must sign a Confidentiality Letter.

Each company has strengths and weaknesses in its different areas. Advisors, lawyers, external managers, and representatives of different areas are the ones who will provide data in order to know how to proceed in the future and where to modify the weak parts in search of an improvement.

This task will be carried out by the advisor, who, in order to avoid tensions between the parties, will balance the results, in order to be able to continue with the process.

First agreements

It will be necessary to implement different agreements so that they are merged through the exchange of shares of the companies, allowing for those of the new company to be formed. This is a negotiation that the advisor will manage using their expertise to bring the initial stage to fruition.

Intention letter

This is the culmination of the first stage of negotiation.

You should keep in mind:

The object of the transaction and its price;
Commitments, conditions, and terms to consider.

Once this document has been signed, we will proceed to continue with future constitutive stages that will definitively lead to the closing of the operation.

Business Lawyers’ Value in Mergers and Acquisitions