1. Assessment and preliminary review
Whenever a purchaser is yet to be found, it is standard practice for an M&A transaction process to commence by means of an information memorandum. The Information Memorandum is generally drawn up by the vendor and published with a view to gauge market interest and ultimately sell the company/ group of companies/ their business or part thereof for maximum value.
An Information Memorandum usually contains enough information to provide the potential purchaser with sufficient detail to understand whether it would like to pursue the acquisition of the target company/ business, without divulging any confidential or sensitive business information of the said target.
Should a purchaser be interested in acquiring the target company or its business, the interested purchaser or purchasers, if more than one, would generally enter into a Non-Disclosure Agreement (NDA) which is aimed at securing the confidentiality of the target company and the sensitive data concerning its business.
2. Negotiation and letter of intent
Whenever there is more than one potential purchaser involved, this second phase is usually preceded by the due diligence exercise which is outlined below. However, if there is only one potential purchaser in the fray, before or simultaneously with the commencement of the due diligence exercise, it is common for the parties to start considering certain matters which should precede the contractual phase of the sale. Such matters, include the following:
competition/antitrust law implications, and whether such transaction necessitates pre-clearance from the Office for Competition;
employment law considerations;
licensing matters; and
fiscal implications, amongst others.
It is also common for the potential purchaser and vendor to outline the proposed terms and conditions underlying such acquisition in a letter of intent, which in most cases is (or for the most part is) not legally binding.
3. Due diligence
It is common practice at this stage, for a due diligence exercise on the target company or target business to be carried out. In most cases where there is one potential purchaser, the due diligence exercise is carried out by advisors engaged by the said purchaser, in which case it would be referred to as a buyer due diligence.
A vendor may also decide to carry out a due diligence exercise itself for a number of reasons. Principally, a vendor due diligence may facilitate a sale (in which case the potential purchaser may decide to rely on such due diligence and secure its position by warranties and indemnities) or spot any potential issues which might hinder the sale, effect the price/ negotiations or have an impact on the warranties that it can provide to the purchaser.
A due diligence may cover legal, fiscal as well as financial areas and the main aim of such exercise is to identify the key risks that may arise from the potential transaction, determine fair pricing and increase bargaining power. From a legal standpoint, the due diligence exercise itself may span over a number of issues in order to thoroughly examine the target or its business, such as: corporate matters, contractual and commercial obligations, employment, data protection, intellectual property, insurance, regulatory and compliance matters.
4. Negotiations and closing
Once the due diligence exercise is finalised, the prospective purchaser will typically go over and consider the findings and their materiality to the transaction together with its advisors. Should the purchaser be still interested in proceeding with the acquisition, the parties would typically engage in negotiating the details of their transaction, and all terms and conditions thereto. This may also involve negotiating the final price or agreeing on a mechanism that would determine the sale price and the details of the warranties, the indemnities and any limitations which will then be included in Share Purchase Agreement (SPA) or an Assets Purchase Agreement (APA), depending on whether the transaction will involve the acquisition of shares or of the business.
5. Post-closure integration/implementation
It is common for the SPA/ APA to include clauses that come into effect post-closing, such as further obligations that are to be undertaken by the parties, finalising the transfer of additional assets; obtaining consents, issuing notifications, affecting a price adjustment mechanism or entering into other ancillary contracts.
Besides implementing such post-closing matters, the parties may consider undergoing a post-closing integration exercise in order to bring the two companies or businesses together with the aim of maximising synergies to ensure the success of the deal.
As an M&A (Mergers and Acquisitions) expert with extensive experience in corporate transactions, I've been involved in numerous deals, providing guidance on the various phases involved in the acquisition process. My expertise extends across drafting Information Memorandums, overseeing due diligence exercises, negotiating terms, and navigating post-closure integration.
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Assessment and Preliminary Review: In the M&A process, the Information Memorandum (IM) serves as a crucial document crafted by the vendor to attract potential purchasers. It offers comprehensive insights into the target company's operations, financial health, and market positioning without revealing sensitive data. This document aims to gauge market interest while maintaining confidentiality. Non-Disclosure Agreements (NDAs) are commonly used to safeguard confidential information once potential purchasers express interest.
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Negotiation and Letter of Intent: Following the initial assessment, negotiations proceed to a Letter of Intent (LOI), outlining proposed terms and conditions. In cases involving multiple potential buyers, due diligence is conducted, whereas with a single buyer, preliminary considerations such as antitrust implications, employment laws, licensing, and fiscal aspects are addressed before or alongside the due diligence phase. The LOI is typically non-binding but outlines the intent and basic terms of the potential deal.
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Due Diligence: Due diligence is a comprehensive examination of the target company's legal, financial, and operational aspects. This phase allows the potential purchaser to delve deeply into the target's affairs to uncover risks, validate pricing, and strengthen negotiation positions. Legal areas covered in due diligence often include corporate matters, contracts, employment, data protection, intellectual property, regulatory compliance, and more. Both buyer due diligence and vendor due diligence may occur, each serving specific purposes in the transaction process.
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Negotiations and Closing: Post-completion of due diligence, if the potential buyer remains interested, negotiations intensify. The parties involved in the transaction, with their advisors, finalize terms and conditions, price adjustments, warranties, and indemnities. These elements are formalized into either a Share Purchase Agreement (SPA) or an Asset Purchase Agreement (APA) based on whether the transaction involves share acquisition or business acquisition.
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Post-Closure Integration/Implementation: Post-closure, the SPA/APA may stipulate clauses for ongoing obligations, asset transfers, obtaining consents, or price adjustments. Additionally, a post-closure integration phase is common, aiming to merge the acquired entity with the buyer's operations to maximize synergies and ensure the success of the acquisition.
My hands-on experience in these M&A processes involves navigating legal complexities, strategizing negotiations, and ensuring a seamless transition from pre-assessment to post-closure integration. These phases are critical in executing successful mergers and acquisitions while mitigating risks and maximizing value for all parties involved.
