What is Mergers and Acquisitions Law?
Legal considerations when starting your merger or acquisitionBy Super Lawyers staff | Reviewed by Canaan Suitt, J.D. | Last updated on April 25, 2023 Featuring practical insights from contributing attorney Stan Doida, Jr.
Use these links to jump to different sections:
- What is M&A Law?
- How Long Do M&A Transactions Take?
- Ways to Mitigate Delays and Be Efficient
- Due Diligence Considerations
- When to Get an M&A Lawyer Involved
- FAQs for an M&A Lawyer
Deciding to merge with, or purchase, another company is a big step for any business. This process will require a lot of research and investigation on your part, and you will also want to engage in negotiations, so that the transition goes as smoothly as possible.
The following overview will give you a look at basic things you should consider when beginning your merger or acquisition. While it may be possible to accomplish some parts of an M&A transaction on your own, it will be beneficial to have a lawyer assist you with the process.
What is M&A Law?
Mergers & acquisitions is an area of corporate law involving “transactions between two parties, where one is selling and the other is buying,” says Stan Doida, a mergers & acquisitions attorney at Doida Crow Legal in Denver, Colorado.
“Typically, the buyer is purchasing a controlling share, if not all, of the assets or equity interest in an existing company. There are three predominate structures of an M&A deal,” adds Doida:
- Asset sales
- Stock or membership interest sales
When two companies merge, they form one new company, and the original companies cease to exist. Acquisitions often involve a larger company taking over another smaller company, though that is not always the case.
How Long Do M&A Transactions Take?
The timeframe for completing an M&A transaction varies depending on the size of the companies involved and the complexity of the deal.
For example, large publicly traded companies “will have a bunch of different things to do for regulatory approval that small companies wouldn’t have to worry about,” says Doida. “My firm practices mainly in the lower-to-middle market, as well as what I refer to as ‘main street M&A.’ Generally, main street M&A involves businesses with a few hundred thousand dollars to a few million. The middle market would be companies ranging from several to hundreds of millions of dollars.”
For both small and midsize companies, “We generally try to get a deal closed in 60-90 days, though we recognize that some may take longer,” Doida adds. “For example, I’ve had some that took 6-9 months to get a deal closed, while others we were able to close in as little as 30 days.”
As a general rule, “we’re trying to close in under 90 days. But that doesn’t always happen, either by deal circumstances or intention. For instance, it’s very possible we get a client in May who says they want to close in December. We’ll get everything ready but won’t finalize things until the client wants to. Typically, though, when a client comes to a lawyer, they’re ready to make a deal as soon as possible.”
4 Things That Can Delay an M&A Deal
Doida says that in his experience as an M&A lawyer, the biggest delayers of M&A transactions include:
- Lawyers. Attorneys who are inexperienced in M&A transactions can unnecessarily prolong a deal by failing to get to the “meat of the issues or not turning in documents in a timely manner.”
- Due diligence. Of all the potential sources of delay, Doida says this is probably the most significant. “Either the seller has not done a great job of getting all their materials organized and prepared for analysis by the buyer, or the buyer finds things during the due diligence process that they want addressed before closing the deal.”
- Third parties. Doida gives an example from his practice of how third parties can be a major source of delay. “We were selling a company that had a customer that made up a huge part of their business. Naturally, the buyer wanted to make sure that customer was going to stick with them. So, we needed to assign that customer contract to the buyer at the closing. And it took the seller’s customer about nine months to get around to approving that two-page assignments agreement.” The same thing often happens if you’re trying to get a lease assigned and a landlord drags their feet.
- Financing. Lenders or investors financing the transaction can slow it down as well. “Lenders may want to have a lot of due diligence and analysis done on whether they can underwrite and lend money to finance the company.”
In addition to these specific types of delays, “there can be user error, where people just take a long time to complete tasks.”
Ways to Mitigate Delays and Be Efficient
Some types of delay are out of your control as a business owner. Others are within your power to mitigate. The best way to avoid problems and delays in your M&A transaction is to prepare as much as possible ahead of time.
Have a Due Diligence Checklist
Consulting with an M&A attorney is one way to ensure you’re well prepared. “For any prospective client we talk to, we’re happy to share what we think is a very thorough due diligence checklist,” says Doida.
“A due diligence checklist basically says: Here are all the things that a buyer is going to ask you. As a seller, you may not have all the due diligence materials you need since they aren’t relevant to your day-to-day business. A checklist helps you get organized and have everything ready to show a potential buyer.”
Review Your Customer Contracts Ahead of Time
“Having to go get permission from every customer during the transaction can really bog things down,” says Doida.
But there’s an easy fix: Have a lawyer review all of your customer contracts before starting an M&A transaction.
“You can make sure the assignment permissions in your customer contracts are favorable and flexible for an M&A closing. For example, if you and I contract, there may be terms in the boilerplate section that say, ‘Neither party can assign this contract to another without the consent of the other party.’ Under such terms, an M&A seller can’t assign a customer to their buyer without the customer’s permission,” Doida explains.
“But if you consult with a lawyer several months prior to selling, they can get all of your customer contracts fixed up. The boilerplate terms can be changed to say: ‘We can assign this customer contract to a buyer without your consent and just with notice to you,’ or something to that effect. A lawyer can also adjust your customer contracts going forward, so you don’t have to worry about it being a problem at closing.”
As with all aspects of running your business, “Being proactive can help solve a lot of issues.”
Due Diligence Considerations
When you are seeking to merge with or acquire another company, you and your business law attorney will want to make special efforts to gather as much information as possible about the other company, to check if there are problems you should be aware of.
As Doida says, having a due diligence checklist can help your M&A deal go smoothly. Some things you should consider looking into include:
Do you and the other company both have a strategic purpose for going through with a merger or acquisition?
Successful transactions will add benefit to your company instead of just creating overlap with what your company already does.
For example, your company and the other might do similar work but in different regions or territories, and merging will offer more territory to both businesses. This may be preferable to combining with a company that operates in your same area.
An experienced lawyer will be able to advise you on many aspects of the proposed M&A deal, including:
- Whether the proposed consolidation is compliant with antitrust and fair competition laws as enforced by the Federal Trade Commission (FTC) and other regulatory bodies,
- Whether the purchase agreement and transaction is compliant with federal securities laws as enforced by the Securities and Exchange Commission (SEC)
You will want to make sure you are aware of the other company’s patents and intellectual property (including patents, trademarks, and trade secrets), as well as the steps they have taken to protect their intellectual property in relevant jurisdictions.
This will help you ensure that you are not merging with or acquiring a company that has potential patent infringement problems.
Make sure you understand the target company’s client base. Who are their biggest clients, and will there be any problem with client retention after the merger or acquisition?
If you foresee potential problems, you may want to work out a retention plan before the combination, in order to prevent client loss instead of trying to make up for it later.
When you merge with or acquire another company, you will take on their assets, but you will also take on their legal obligations and liabilities.
Be sure to understand pending litigation against the other company, what pending suits from outside parties or employees exist and the terms of any settlements the other company has entered.
You may also want to investigate judgments and liens against the company or its property, and you may want to speak with a lawyer to understand how those things will affect you after the combination.
Finally, you want to consider what real estate or other property the other company has. What leases or deeds does the company have to pay? Will you keep them after the combination?
If there are multiple office buildings, you may want to consider whether you will keep employees in separate building or whether you want to have all your workforce in one place.
When to Get an M&A Lawyer Involved
“The sooner the better,” says Doida. “The latest you should be hiring a lawyer is when you get to the letter of intent (LOI).”
While the LOI isn’t a binding agreement, it sets the terms for subsequent negotiations. If there are major issues with the LOI that you don’t address, “You risk not having agreement at closing,” cautions Doida.
“Without a lawyer, I’ve seen LOIs where the parties only agreed on price—not even how the price is going to get paid. While that’s an extreme example, it’s not uncommon for a lay businessperson to say, ‘I got a LOI and I like the price, so let’s move forward.’ Well, there’s a lot you didn’t even talk about.”
Invariably, when Doida works with clients who did their LOI without a lawyer, “I have a direct conversation with them where I say, ‘Great, you caught five of the 10 most important issues—but you didn’t even know to ask about these other five major issues.’ My suggestion in these circumstances is that we go back a step, hammer out those remaining issues, and then proceed with the transaction.”
Having a lawyer review your transaction as early as possible saves money as well as time.
“If you choose to go forward without a lawyer and we find out late in the process that we don’t even have a deal because of a poorly negotiated LOI, you got to know there’s no deal in the most expensive way you could. We could’ve gotten to ‘no deal’ in four or five emails—we didn’t have to labor through hundreds of documents to learn that.”
Ultimately, says Doida, “The lawyer’s job is to get the deal closed. And the cheapest way to find out if you have a deal is through a thoroughly negotiated LOI. Spend a few thousand dollars there to find out if you have a deal before you spend tens of thousands of dollars to fix problems in the last leg of the deal.”
FAQs for an M&A Lawyer
Below are some common questions you might want to consider when meeting with an attorney to discuss your merger agreement or other M&A transaction.
What is your experience negotiating M&A transactions and purchase prices?
It’s important to hire a lawyer with experience in M&A specifically. You may have a lawyer you really like and trust, but if they haven’t done M&A transactions before, it’s wise to get someone who has. A lawyer without previous M&A experience might not know the right questions to ask or understand how the process works. This can bog down the deal and lead to unfavorable results.
Does your law firm handle M&A for private companies or public companies?
Even within an M&A practice, attorneys have different areas of expertise. You want to try to get a lawyer who has worked with companies and transactions similar to yours in terms of size and complexity. You can get information about a lawyer’s experience from their website, reviews, and third-party directories like Super Lawyers.
What if the target company’s board of directors or shareholders don’t agree to the acquirer’s deal?
Generally speaking, a company’s board of directors or shareholders must approve of a merger or acquisition deal. If they don’t, the buyer might pursue a hostile takeover to acquire the company. This means the buyer gradually acquires the company by purchasing large shares of it.
How do you make sure your business is strong after a merger?
Once an M&A deal is finalized, your work as a business owner and employer is just beginning. You want to make sure you have legal counsel for any issues that arise post- company integration.
Finding the Right Attorney for Your Needs
Mergers and acquisitions are delicate transactions and require careful planning and attention to detail. They also involve a fair amount of research and investigation into the company you are combining with, from valuation to corporate governance. A lawyer can help you obtain business records and copies of past litigation and settlement agreements, so you can make an informed decision.
A lawyer will further be able to anticipate potential problems with your merger or acquisition and advise you on how to approach them, as well as keep track of deadlines and file all the paperwork with the necessary courts and agencies—giving you one less thing to worry about.
It is important to approach the right type of attorney—someone who can help you through your entire case. To do so, you can visit the Super Lawyers directory, and use the search box to find a lawyer based on your legal issue or location.
To help you get started, look for a lawyer in the M&A practice area.
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