M&A lawyers are legal professionals skilled in business law, mergers, and acquisitions. Transactions can be highly complicated and involve local, state, and federal regulations. An M&A lawyer guides the process to ensure everything is appropriately documented and compliant with applicable law.
M&A lawyers, or mergers and acquisitions lawyers, are legal professionals who help their clients navigate the complexities of the M&A process and offer strategies to make the process smoother and more efficient. While not consistently adversarial, an M&A Lawyer will help protect their client’s interests and ensure that they have a positive outcome.
So, what does an M&A lawyer do? How can they help ensure a streamlined business sale? Here is what you need to know.
Table of Contents
What are Mergers and Acquisitions?
Types of Mergers and Acquisitions
How are Acquisitions Financed?
Mergers and Acquisitions in Law
Getting Involved with Mergers and Acquisitions Law
What are Mergers and Acquisitions?
“Mergers and acquisitions (M&A) consolidate companies or their significant business assets through financial transactions between businesses.”
For example, one company could purchase and absorb the entirety of another, merge with it to create a new company, or acquire some or all of its assets.
The terms “mergers and acquisitions” are often used interchangeably. However, knowing the differences is crucial. Mergers describe two firms that join forces and become a single, new entity. Often the two firms are approximately the same size, in which case the merger is also often called a merger of equals.
On the other hand, an acquisition is when one company purchases another company and establishes itself as the new owner. Still, the target company continues to exist as a distinct entity. Hostile takeover deals are also considered acquisitions. A hostile takeover is the acquisition of one company (the target company) by another (the acquirer) against its wishes. The acquirer goes to the target company’s shareholders or fights to replace management to approve the acquisition.
Types of Mergers and Acquisitions
Along with general mergers and acquisitions, several other everyday transactions fall under the M&A umbrella, including these:
- Consolidations
- Tender Offers
- Acquisition of Assets
- Management Acquisitions
#1. Consolidations
Consolidations create new companies by combining businesses and abandoning old corporate structures. The stockholders of both companies must approve it, and then they receive equity shares in the newly created firm. For example, Citicorp and Travelers Insurance Group announced a consolidation that resulted in the new entity Citigroup.
#2. Tender Offers
Tender offers are when one company offers to purchase outstanding stock of a publicly traded company at a specific, set price rather than the market price. The request can bypass company management and the board of directors and be communicated directly to shareholders, but it doesn’t have to be. When management and the board of directors support the transaction, they will also communicate their recommendation to the shareholders to approve the transaction.
#3. Acquisition of Assets
An asset acquisition occurs when one company acquires some or all of the assets of another, but the other company itself doesn’t change ownership. This means that none of the liabilities of the target business are inherited by the buyer, which is why asset acquisitions are the preferred form of M&A transaction for small business acquisitions. The purchase of assets is also typical during bankruptcy proceedings because the buyer bids for various assets of the bankrupt company without inheriting the bankrupt company. The proceeds from the sale of assets are used to pay off the bankrupt company’s creditors, and then the bankrupt entity is eventually liquidated.
#4. Management Acquisitions
Management acquisitions, also known as management-led buyouts (MBOs), occur when a company’s executives purchase a controlling equity stake from the shareholders of the business they manage. Often, MBOs are used to take a public company private, and the executive team partners with a financier to help fund the transaction.
How are Mergers Structured?
There are different structures a merger can adopt, including:
- A Horizontal Merger is between two companies in direct competition with each other.
- A Vertical Merger is a merger between a customer and a company or a supplier and a company.
- A Congeneric Merger is between two businesses that serve the same customer base but in different ways.
- A Conglomeration is between two unrelated companies with no common business areas.
There are also market-extension mergers between two companies selling the same products in different markets. Plus, investors can consider similar product-extension mergers between two companies selling unique but related products to the same market.
How are Acquisitions Financed?
If you’re pursuing an acquisition, there are various ways that one company can buy another. It can be with cash, stock, an assumption of debt, or even a combination of all three. There are also other acquisition deals known as reverse mergers. These deals allow a private company to become listed publicly in a short time.
“A reverse merger occurs when a private company has strong prospects and wants to gather financing, so it buys a publicly listed shell company.”
Then, the private company merges with the public one it purchased and becomes a new public entity with tradeable shares.
A reverse merger can be a simplified way to take a private company public. Still, even after identifying a suitable public company, the acquisition process comes with strict regulations and public reporting requirements that must navigate. Those roadblocks can make the process more expensive and difficult in the long run.
Mergers and Acquisitions in Law
In law, mergers and acquisitions focus on domestic and global transactions that aim to consolidate businesses through legal operations. Those legal operations include mergers, tender offers, and hostile takeovers. The complexity and required legal operations of an M&A deal will vary depending on several factors.
Although each M&A lawyer differs, most transactions have a few typical stages. Those stages include:
- Due Diligence
- Contract
- Closing
- Post-Closing
#1. Due Diligence
In the due diligence stage, financial and legal advisors — like M&A lawyers — of the buyer conduct a comprehensive and thorough review of the economic and legal matters of the target company or the assets set to be purchased. This due diligence stage aims to identify any potential financial or legal contingencies that could impact the transaction. While it’s an important step in every deal, it’s even more important in equity acquisitions, where the buyer will be inheriting the existing liabilities of the target company. A thorough due diligence process can help uncover potential hidden liabilities for the buyer. These findings are then used as the primary source material to craft the contract for the deal.
#2. Contract
Typically, the buyer’s M&A lawyers have primary responsibility for the initial draft of the definitive purchase agreement and related documents. Both parties’ M&A lawyers then negotiate the final forms of agreements under the direction of their clients, which will allocate risks between the buyer and seller according to the results from the due diligence stage. The contract can come in various forms, including a stock or asset purchase agreement.
#3. Closing
The contract will provide an in-depth description of the actions required of the buyer and seller to close the M&A deal. Each closing stage is different depending on the specific criteria of the transaction. Some may require the consent of a governmental authority or other third parties to approve the transaction. In contrast, others may depend on the individual actions of either party, like the payment of the purchase price or delivery of stock certificates.
DID YOU KNOW: An M&A lawyer can help ensure the closing stage is completed appropriately for your specific situation.
#4. Post-Closing
After the M&A deal is closed, parties may have post-closing obligations or actions to comply with, like a non-compete or non-solicitation debt. All parties can become pretty burnt out with the transaction process when closing occurs. This is often called “deal fatigue,” which can lead to the parties losing track of the important post-closing matters. This is where having experienced legal counsel can be very useful to help keep track of the important items that still need to occur, even while buyer and seller are pivoting their attention to new matters.
What Does an M&A Lawyer Do?
“An M&A lawyer’s primary purpose is to assist clients in navigating the legal complexities and documentation of mergers and acquisitions.”
M&A deal work is done by law firms of all sizes, from the largest multi-national firms down to the local solo practice. Large firms are typically more focused on buying and selling public companies or large-cap private equity transactions, as those are usually the most complex deals. In contrast, smaller firms typically do most of the small business and lower middle market private M&A transactions.
A day in the life of an M&A lawyer can vary but typically includes speaking to clients and colleagues and reviewing and drafting various corporate documents. At the beginning of the M&A transaction, the buyer’s M&A lawyer focuses on the due diligence stage. Then they prepare drafts of documents required later in the process.
Meanwhile, the seller’s M&A lawyer is collecting and preparing all the information and documents needed to review during due diligence. The due diligence stage continues with both M&A lawyers attending calls and meetings to discuss and negotiate any issues that may have been discovered.
After due diligence, the M&A lawyers work on revising the sale or purchase agreement to reflect the evolving business deal. Then, the process enters the closing stage, where the M&A lawyers finalize the arrangements on each side of the contract. They also use this time to gather necessary signatures and satisfy any closing conditions.
The list of duties that M&A lawyers have is extensive but includes things like:
- Identify the client’s business objections and any potential legal issues
- Advise on the deal and negotiation tactics
- Work with tax attorneys to determine potential tax implications from the deal
- Collaborate with antitrust attorneys to assess any regulatory obstacles
- Cooperate with local legal counsel if it’s a cross-border transaction
- Gather third-party consents
- Inform on and implement defensive measures to deter hostile takeover attempts
“M&A lawyers run the deal and serve as the point of contact for the rest of the team.”
The M&A lawyer is also the one who has the principal responsibility of effectively getting the transaction to the closing stage. In most cases, M&A lawyers are legal jacks of all trades and should have these core competencies:
- Strategic Thinking
- Negotiation Skills
- Ability to Multitask
- Strong Delegation
- Well-Organized
- Strong Attention to Detail
- Ability to Work Quickly and Efficiently
It’s also crucial for M&A lawyers to have substantive legal knowledge of state corporate, contract, fiduciary duties, and federal securities law. Like most business lawyers, M&A lawyers should also have a working knowledge of various corporate law sectors, such as:
- Corporate Finance
- Taxes
- Environmental Laws
- Employment and Labor Laws
- Executive Compensation Benefits
- Intellectual Property
- Anti-Corruption
- Commercial Law
In many cases, M&A lawyers will work on the same types of transactions for the entirety of their careers, whether focused on the purchase or merger of businesses. However, the work can still vary depending on factors like:
- Industry
- Buyer
- Seller Size
- Bargaining Power
Getting Involved with Mergers and Acquisitions Law
If you’re interested in business law counsel, consider an M&A lawyer. With the rise of globalization and international business, there is a demand for M&A lawyers with a knowledge of international law and business operations.
Because M&A transactions are some of the most high-profile transactions in business, being an M&A lawyer is a very high-profile job. Companies rely on their M&A lawyers to help them reach their business goals legally and effectively. That’s because an M&A lawyer must possess several formal qualifications and complete education in specific disciplines. A qualified business lawyer must also have a license to practice law and pass the Bar Examination for their state.
Conclusion
An M&A lawyer’s primary purpose is to assist clients with navigating the complexities of these transactions and making sure their clients are well within the regulations governing such transactions.
There are many types of Mergers and Acquisitions and many local, state, and even federal regulations governing these transactions. Financing usually plays a large role in such negotiations, and M&A lawyers are skilled at negotiating every facet of these transactions to protect their clients and ensure everything is done and recorded properly.
