Mergers and acquisitions can be an important strategy to fulfill a number of company goals. You could be a small company or a large one, and a merger or acquisition can still benefit you. On the other hand, mistakes during a merger or acquisition are often made, and these can lead to delays, conflict, and litigation.
At the Law Office of J. Caldwell Guilds III, our mergers and acquisitions attorney is here to help you work towards a smooth transition to avoid merger and acquisition problems. Further, we can assist with all other business matters that you might need after the merger or acquisition. Schedule a Complementary Consultation.
What Are Mergers and Acquisitions of Businesses?
Mergers and acquisitions (M&A) is an umbrella term used to describe when either (1) two or more businesses merge or consolidate; or (2) one business acquires another business.
- A merger is when two businesses combine to form a single entity. To do this, two businesses combine their assets together into one remaining business entity. A merger may help a business reduce its costs and grow its market share. This process is typically mutually beneficial. The two businesses joined as one may choose a new company name that better reflects the new company's mission, or they may choose to maintain one of the companies' names to benefit from brand awareness.
- Under a consolidation, two or more businesses come together to create a new entity that takes on the assets, liabilities, and financial resources of both businesses. Businesses often consolidate to increase profitability and take advantage of cooperation, rather than competition.
- An acquisition occurs when one business buys part or all of a second business' stock or assets. sometimes, this process can involve conflict or a hostile takeover of a publicly traded company. The company acquiring the other business usually keeps its business name, legal structure, and operations. As such, the acquired business legally ceases to exist.
While often discussed in the context of large conglomerates or multinational corporations, M&As can involve businesses of any size, including small businesses.
After preliminary discussions between the two companies that outlines an agreement in principle, it is essential to draft a term sheet or memorandum of understanding detailing the key terms & conditions governing the M&A agreement. If the parties can't comes to terms in negotiating the term sheet, it saves the time and expense of drafting an agreement for a failed deal.
This document includes important information about the event, such as:
- The businesses' details
- What assets or stock are being purchased
- A list of the assets and liabilities of the business being bought (in an acquisition) or both businesses (in a merger or consolidation)
- The level of access each party will have to the other's financial information for due diligence
- Any other terms of the agreement
The term sheet is key. It represents the first real step in whether a deal "will grow legs" to continuing moving forward to a successful close. At the Law Office of J. Caldwell Guilds III, our experienced transactional and M&A attorney will assist you in negotiating, structuring, and drafting a term sheet and final documentation that clearly outlines the deal. More importantly, an experienced transactional attorney can help you determine when is the situation to push for harder terms & conditions and when is the situation that requires making concessions and maybe "leaving money on the table" to achieve the larger goal of getting the deal closed.
Should Your Business Consider M&A?
There are several reasons why a merger or acquisition may be relevant to your business. A merger or acquisition could allow you to:
- Expand your market share – Merging with or acquiring companies with an existing market share or complementary business can give you access to better growth opportunities, including different geographic markets. By sharing expertise and experience, you can expand your business immediately rather than building a new business from scratch.
- Increase profitability – Combining two smaller businesses may allow you to lower labor costs and take advantage of economies of scale to grow your profits. When companies merge, they can eliminate extraneous staff to reduce labor costs while purchasing raw materials and/or supplies at higher volumes to reduce overall costs. These savings can be passed on to consumers.
- Update a product, service, or business model – If your business is unable to keep up with technological advancements, another business may be interested in acquiring it. This avoids your business from sustaining continued losses. Or you may consider an M&A with another business to access new technologies.
- Engage in corporate restructuring – If you are considering restructuring debts and equity to reduce loan costs, M&As may help you to do so.
- Increase financial resources – When companies merge, they pool their financial resources. This increase in financial leverage may open the door to new investment opportunities.
Entering into an M&A is a significant decision to make in the life of a business, so it's important to carefully reflect on your reasons for doing so.
Five Things to Consider Before a Merger or Acquisition
In addition to being clear on your goals, there is a range of considerations before entering into an M&A agreement. Listed below are a few of these considerations.
- Business valuation. If you're considering merging with or acquiring another business, you should first find out how much it's worth. A formal business appraisal will help you assess whether it's worth proceeding.
- Good standing. Before entering into an M&A agreement, you should confirm the parties are in good standing—they are valid and certifiable—in the state where they were formed. If they are not, it may indicate financial issues and lead to problems when filing the necessary M&A paperwork.
- Company culture. When two firms combine or one is acquired by another, there can be a significant disconnect between the cultures. It's important to spend time strategizing how to merge different company cultures to ensure a smooth transition.
- Intellectual property. If you're acquiring a company, you should check its intellectual property assets and whether they are protected by trademarks, copyrights, or patents. Also confirm whether the business you are acquiring has any outstanding intellectual property against it, as these can take a lot of time and resources to resolve.
- Anti-money laundering. If the business you're merging with or acquiring does any business in foreign countries, you must consider anti-money laundering laws and regulations. This includes confirming whether the other business engages with banned individuals or companies.
Even for small privately held businesses, M&As can be complex, lengthy, and potentially risky business transactions requiring a large amount of due diligence. For these reasons, it's worth seeking professional financial and legal advice before entering into an M&A. The Law Office of J. Caldwell Guilds III specializes in providing this type of transactional financial and legal M&A advice.
Contact a Transactional M&A Attorney Today
Mergers and acquisitions can be a strategy for growth, but to do it right, you must plan and consider all the legal and financial implications to your business, to your family, and to yourself. At the Law Office of J. Caldwell Guilds III, our transactional M&A attorney provides detailed, comprehensive advice on negotiating, structuring, documenting, and closing both the M&A transaction and any related dept or equity financing. We are here to provide you with a competitive edge.