In today’s business environment, the constant pursuit of growth and sustainability has led companies to explore various strategic tools, with mergers and acquisitions standing out as powerful levers for expansion and the generation of new businesses both at a regional and global level.
In the realm of international trade, mergers and acquisitions provide opportunities for companies to swiftly broaden their presence in foreign markets, acquiring resources, assets, clients, and capabilities that could take a considerable amount of time to develop organically in different jurisdictions.
And while local-level operations may be seen as more geographically limited compared to global operations, it doesn’t mean they are any less important or less complex. Local mergers and acquisitions can have significant implications in terms of competition, the local economy, employment, and community relations.
However, it is crucial to acknowledge that these processes involve a series of complex legal and regulatory issues that must be addressed with precision. At MRK International Law, we are familiar with the specific challenges that arise in international and local trade.
M&A: Tools for business growth
The acquisition, participation, association, or control of a company or its assets allow it to expand or create new businesses.
- Acquisitions: Are purchases of one company by another; the one that contributes the largest capital is the one that predominates.
- Mergers: Are unions between two or more companies to form a new, combined company. Mergers can occur in companies with the same production chain, or in competitors.
As we mentioned before, there are different reasons that these operations occur:
- Both companies might be weak in the market, and the union of both serves as a resurfacing tactic.
- To increase the growth of a company.
- To correct certain parameters in the market.
Benefits and changes
The benefits are multiple, and they positively impact the market. The changes are varied and many, and we can mention some of them:
- Increased profitability
- Increased productivity
- Higher employment rates
- Modification in share values
- Wide range of new products
- Insertion into a new market
- Increased market dominance
Types of Mergers
In the context of corporate mergers, there are various modalities. In a pure capital merger (also called horizontal merger), participating companies amalgamate their resources and capital equally to form a new entity. In this scenario, both companies are legally dissolved, giving rise to the creation of a new company that shares structure and leadership.
In a partial asset merger (also called vertical merger), one company absorbs the other, resulting in the loss of the legal entity and corporate personality of the absorbed company. Here, the absorbing entity maintains its legal identity and assimilates specific assets from the partially merged company.
The merger by absorption (also called concentric merger) involves only one company contributing part of the capital, but both continue to operate independently, even after the creation of a new entity. In this case, the company making the capital contribution becomes the dominant entity, while the other retains its legal and operational identity. Although a new entity is formed, both companies retain their autonomy and organizational structure.
Categories of Acquisitions
In the realm of acquisitions, which essentially involve buying and selling operations, two fundamental modalities are distinguished:
On one hand, when a company cannot bear the costs, the other company contributes them, allowing it to gain total or partial control.
Another form involves the total or partial acquisition of shares, depending on the size of the share package and the quantity and quality of the shareholders involved.
During the pandemic, many companies are unable to survive economically and precisely go to mergers or acquisitions to endure the brand in the market.
For example, we can mention one among many cases, like that of the Authentic Brands Group (ABG). They offered 325 million dollars for the purchase of the Brooks Brothers firm. This company is a pioneer in offering ready-to-wear garments, founded in 1818, not only in the United States but also in 45 countries around the world.
Due Diligence: The cornerstone in business decision-making
Due diligence stands as a crucial stage preceding business decision-making, playing the role of unveiling the veils that conceal the intricate complexity of the target company.
This phase involves a meticulous evaluation of contracts, agreements, pending litigations, intellectual properties, and any other legal aspects that may influence the transaction. Identifying potential legal liabilities, regulatory risks, and contractual issues becomes essential to prevent unfavorable surprises in the future.
From legal contingencies to cultural challenges, due diligence aims to quantify these risks, allowing them to be addressed and mitigated in subsequent stages of the transaction.
Business leaders, in collaboration with business lawyers and other professionals, can anticipate changes, identify growth areas, and structure the transaction in a way that fosters long-term synergy. This strategic stage not only focuses on legal aspects but also encompasses understanding potential cultural implications and other factors that may impact the success of the transaction.
Post-Merger Integration: Navigating the complex transition
After the completion of a merger or acquisition, the post-merger integration (PMI) phase becomes a pivotal moment for the involved companies. Successful integration is crucial for realizing the intended synergies, maximizing operational efficiency, and ultimately achieving the desired strategic objectives. In this context, the role of international business lawyers are also indispensable, as they guide companies through the intricate legal, regulatory, and contractual aspects of the integration process.
Lawyers ensure that pre-existing contracts are reviewed and renegotiated as needed, addressing issues such as intellectual property rights, licensing agreements, and supplier contracts. We help companies navigate the renegotiation process and avoid any contractual disputes that may arise during integration.
Do you need an International Business Lawyer?
Both processes, whether acquisition or merger, are inherently complex and demand expert management to ensure their effective execution. The guidance of Business Lawyers who are experts in Mergers and Acquisitions becomes a crucial element, guiding entrepreneurs through each phase of the operation and providing the necessary expertise to navigate the legal and strategic challenges involved.
When we talk about creating or transforming businesses, it is normal to have doubts and queries. Today we show you expert answers to some frequently asked questions that many clients ask.
What role do business lawyers play from project inception in M&A?
Minimizing the risks associated with these operations is essential, as they inherently bring about a change in business dynamics. Business lawyers play a fundamental role from the inception of the project, participating in contract drafting and conducting thorough assessments of the financial processes of the involved companies. This proactive approach not only contributes to proper preparation and planning but also helps anticipate potential obstacles and implement strategies to mitigate them.
We collaborate closely with our clients and other advisors to develop a strategic roadmap for the transaction. This involves assessing the feasibility of the M&A, conducting initial due diligence to identify potential legal, financial, and operational risks, and advising on the most suitable transaction structure.
We actively participate in negotiations, working to achieve favorable terms and conditions that align with our client’s objectives while safeguarding their legal interests. This includes drafting and reviewing critical documents such as letters of intent, confidentiality agreements, purchase agreements, and ancillary agreements.
Additionally, our role encompasses managing the due diligence process comprehensively. We coordinate with internal and external teams to gather and analyze pertinent information about the target company. This thorough review helps us uncover any issues that could impact the transaction’s success and allows us to provide informed recommendations to mitigate risks effectively.
Throughout this initial phase, our focus is on providing strategic legal counsel that not only facilitates a smooth transaction but also lays the groundwork for successful integration post-closing. We ensure that our clients are well-informed about the legal implications of every decision and empower them to make sound choices that support their long-term business objectives.
How business lawyers handle due diligence?
Business lawyers meticulously review a wide range of documents and information, including contracts, leases, intellectual property rights, litigation history, regulatory compliance records, financial statements, employee benefits, and more.
We analyze the findings to advise their clients on potential legal risks, negotiate terms that protect their interests, and uncover opportunities for value creation through the transaction.
Also, we leverage our legal expertise to assess the implications of each aspect thoroughly and provide strategic recommendations to mitigate risks and optimize the transaction’s outcome.
What role do business lawyers play in post-merger integration processes?
In post-merger integration processes, our role as business lawyers is crucial. We oversee the legal aspects of combining two entities, ensuring seamless integration of contractual obligations, intellectual property rights, and regulatory compliance. We review and align existing contracts, leases, and licenses to harmonize operations and minimize legal risks.
Additionally, we navigate regulatory requirements and obtain necessary approvals to facilitate the merged entity’s compliance with antitrust laws, industry regulations, and other legal obligations. Resolving any disputes that may arise during integration is also within our purview, using negotiation, mediation, or litigation strategies as needed to protect our client’s interests.
Furthermore, we manage the transfer of intellectual property assets and ensure proper documentation to maintain their legal integrity. Addressing employment issues, such as contracts, benefits, and compliance with labor laws, is another critical aspect of our role in ensuring a cohesive and legally compliant post-merger transition.
How do legal considerations differ in national vs. international M&A?
Legal considerations in national mergers and acquisitions primarily focus on compliance with the laws and regulations of the country where the transaction is taking place. This includes corporate laws, antitrust regulations, tax implications, labor laws, and other local regulatory requirements. Business lawyers ensure that all aspects of the transaction comply with these laws to avoid legal challenges and ensure a smooth process.
In contrast, international mergers and acquisitions involve navigating a complex landscape of laws and regulations from multiple jurisdictions. This includes not only the laws of the countries where the merging entities are based but also international laws, treaties, and regulations that may impact the transaction.
Business lawyers specializing in international law play a critical role in understanding and harmonizing these diverse legal frameworks to facilitate cross-border transactions. They handle issues such as cross-border tax implications, regulatory approvals from multiple jurisdictions, compliance with international trade laws, and cultural considerations that may affect business practices in different regions.
It’s relevant to highlight that these operations can extend both nationally and internationally. In our case, we have an extensive network of international business lawyers in the United States and major global markets. This network allows us to provide localized advice, tailored to the specific legal, tax, business, and economic regulations of each country involved in the operation.
Contact Markowicz International Law today. Our expert business lawyers are here to guide you through seamless integration and strategic growth.