In 2013, my General Counsel and CEO assigned me the task of overseeing the largest acquisition in company history. At that time, I didn’t know what a Letter of Intent was. I had never seen a Purchase and Sale Agreement. I was clueless as to the differences among a stock purchase, an asset purchase, a traditional merger, and a triangular merger (reverse or otherwise). And I needed to learn, fast.
While that was among the most anxiety-inducing times of my career, I quickly began to love my role in running the acquisition. And after that, I became the lead mergers and acquisitions (M&A) attorney for our department and M&A became my favorite part of my job.
Nine years later, I’ve learned some things that I wish I knew then. So I put together this summary of the key stages of the M&A process and the key agreements involved, along with some tips and key issues to watch out for (all with a contract focus, of course, for my fellow #contractnerds).
Hopefully this article can help other in-house lawyers tasked with running a deal and having little-to-no M&A experience.
The typical deal process generally involves the below steps. But other than signing a definitive agreement and closing the transaction, many of these steps may be scaled back or even omitted for a given transaction.
This may be as simple as a seller approaching a potential buyer or vice-versa, or it could be the result of a complex multi-stage auction process run with the assistance of investment bankers.
LOIs tend to include binding terms governing the initial process for the deal (e.g., time period for exclusive negotiations and due diligence) and non-binding terms specifying the parties’ current thinking regarding purchase price, deal structure, and similar critical terms.
This is where the buyers request various information from the sellers regarding the targeted business. The buyers use this information to test the understandings and assumptions of the business they had when signing the LOI. Depending on what the buyers learn, the purchase price and structure may change or the deal could fall apart altogether.
The buyer usually prepares a draft definitive agreement for the transaction, often shortly after due diligence has started. This could take many forms such as, a merger agreement, stock purchase agreement, or asset purchase agreement. See the next section of this article for more information on key M&A agreements.
This often takes place after signing the agreement (and if either seller or buyer is publicly traded and considers the transaction material, it will need to be announced under SEC rules within a few days). But other times, this may not happen until after closing.
Just like when you sign an agreement to buy a house, there is often (but not always) a period of time in between signing the definitive agreement and actually closing the transaction to buy/sell the business. Oftentimes there are governmental or contractual approvals that must be obtained before the business and money change hands.
Business and money (and sometimes deal trophies) are finally exchanged! Sometimes (usually where critical governmental consents are not required) it is possible to sign the definitive agreement and close the transaction at the same time – so this would be step 5, announcing the deal would be step 6, and no closing conditions would need to be satisfied.
Below are the key agreements involved in a typical M&A process, in order of where they generally fall in the process. For each, I’ve noted the purpose and some key tips for negotiating.
This is largely to protect the seller’s confidential information uncovered during due diligence.
As noted above, this sets the key terms for the process and what’s anticipated for the deal.
Whether it’s a stock purchase, asset purchase or merger agreement, this is the key document in the entire process. More than 75% of the time spent negotiating agreements will usually be on this contract.
(There are countless more that I could add – this could be the subject of an entire post by itself!)
Also keep in mind that as part of negotiating a definitive transaction agreement, parties often negotiate supplemental agreements, such as an escrow agreement (to hold some of the purchase price to be available to satisfy indemnity claims post-closing), a transition services agreement (if the seller needs to provide temporary administrative services to the buyer until they develop their own functions in house), employment agreements (if there are key seller employees that the buyer wants to retain), and potentially others.
I hope you find this helpful. It’s not going to be a substitute for years of M&A experience or even the experience of going through one deal yourself! But it should help you focus your attention on some critical issues and give you a better understanding of the overall process so that you can work with outside counsel more efficiently and give better advice to your clients.
If you have any feedback or questions on the post or topic generally, feel free to message me on LinkedIn!
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