The M&A Transaction Process

A merger and acquisition refers to the merging or acquisition of two businesses. The goal is to increase the market share or profit through the acquisition of new technologies, products, or markets.

M&A is a complicated process and involves data room M&A numerous legal, tax, and regulatory issues. In a typical transaction the parties first decide on the structure of the deal, including whether they intend to acquire assets or share and in what format. This will affect almost every aspect of any subsequent acquisition agreement. In certain circumstances, it may be necessary to consider taking steps prior to the sale, like isolating Target assets into a corporation which shares can then be purchased.

Once this initial step is agreed, the next step is due diligence, a deep examination of the target’s relevant 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 a purchaser comprehend the full potential risks and rewards of a proposed deal. It could also reveal unintended or unexpected liabilities, which can lead to the need to negotiate changes to the price, indemnities, or terms of the agreement.

After due diligence, the parties will usually draw up documents known as a letter intent (or term sheet, ‘heads and terms’ or ‘heads agreement’) setting out the fundamental elements of the agreement and the timing. The document will typically contain a “representations and warranties’ section, where each party acknowledges the accuracy of the information that they have provided during negotiations. This is designed to decrease the chance of miscommunications or confusions that could lead to costly legal disputes after the conclusion of the transaction.

The term sheet will contain an agreement from each of the parties to maintain the confidentiality of information throughout the M&A transaction. This is crucial to prevent sensitive and confidential business information from being leaked to the public or other interested parties until the transaction is fully complete. M&A lawyers can help in the formulation of comprehensive confidentiality policies that are binding on both parties.

The signing of an agreement which confirms the main conditions of the M&A deal and the timing is the final step. This is often referred to by the terms ‘purchase agreement or ‘acquisition contract’. The final agreement is typically subject to certain closing requirements, for example the successful completion of all financial and legal due diligence, and the acquisition of necessary regulatory approvals. M&A lawyers can help negotiate the terms and make sure that the agreement is enforceable in the event of any dispute or breach.