The M&A Transaction Process

data room M&A

A m&a transaction is the acquisition or merger of a company by another. The aim is to gain market share or increase profits by gaining access to new products, technologies or markets.

The M&A process is a complex one, often with significant legal tax, regulatory and tax issues to take into account. In a typical transaction the parties first agree on the structure of the deal, such as whether they wish to acquire assets or shares and in what format. This will affect every aspect of the 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 whose shares could then be purchased.

Once the initial step has been agreed, the next step is due diligence, a thorough review of the target’s essential information, including financial, operational and commercial information. This is typically the most time-consuming component of an M&A process. A thorough due diligence exercise can assist a buyer understand the full risks and benefits of a transaction. It can also uncover unexpected or unintended liabilities which could lead to the need to negotiate a revised price, indemnities or conditions to the purchase agreement.

After due diligence, the parties will usually draft documents known as a letter intent (or ‘term sheet’, ‘heads of terms’ or ‘heads agreement’) setting out the most important elements of the deal and the timeframe. This will usually include an area referred to as “representations and warranty” in which each party demonstrates that the information they provided during negotiations is accurate. This is to reduce the risk of misinterpretations and confusions that could lead to costly legal disputes after the agreement has been signed.

The term sheet will contain the agreement of each party to safeguard the confidentiality of information throughout the M&A transaction. This is essential to protect sensitive and confidential business data from being divulged to other interested parties or competitors until the transaction is fully completed. M&A lawyers can assist in the creation of comprehensive confidentiality provisions which are binding on both parties.

The final step is to sign of an agreement confirming the key terms and timing of the M&A transaction. This is often described as a ‘purchase agreement or ‘acquisition contract’. The final agreement will generally be subject to specific closing conditions, such as the successful completion of all legal and financial due diligence and obtaining necessary regulatory approvals. M&A lawyers can help negotiate these terms and ensure that the agreement will be enforceable in the event of dispute or breach.