Navigating Mergers and Acquisitions: Legal Steps Businesses Must Take?

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According to Statista, thousands of M&A deals happen in the US yearly. In 2021 alone, there were over 24,000 M&A transactions, the highest recorded since 2000. However, many of these deals end badly for either the buyer or seller or even both.

This is because M&As go beyond just the transaction; they extend to cultural integration, staff, business objectives, stakeholders, brands, and processes. One unnoticed detail can jeopardize the deal and result in litigations, and other adverse challenges.

The financial and legal issues that result from poorly done M&As extend beyond the present to post-merger, causing business-halting challenges that will cost you way more than necessary.

And what simple solutions can business owners use?

Conduct meticulous due diligence and take proactive legal steps to prevent potential issues and foster M&A success.

Crucial Legal Tips for Navigating Mergers and Acquisitions

You cannot acquire or sell a firm without going through certain crucial legal processes. M&A processes aren't merely transactional. Don't simply focus on completing the deal; the entire roadmap to a successful M&A deal involves proactively mitigating potential legal pitfalls by doing the following:

  • Understand the Type of M&A Deal: M&A transactions can take various forms, including mergers, acquisitions, asset purchases, stock purchases, and joint ventures, and each one has distinct legal and financial implications
  • Due Diligence: Comprehensively conducting legal due diligence is a critical aspect that aims to identify legal risks, liabilities, contracts, intellectual property, regulatory compliance, litigation history, and other factors that may impact the transaction.
  • Ensure Regulatory Compliance: M&A transactions require compliance with various regulatory bodies and laws, including antitrust regulations, securities laws, etc.
  • Thorough Examination of Documents: M&A transactions involve a large pile of legal documents like letter of intent (LOI), purchase agreements, disclosure schedules, employment agreements, non-compete agreements, intellectual property assignments, and more.
  • Representations and warranties are statements made by the parties regarding the accuracy of information, compliance with laws, financial conditions, and other crucial aspects of the transaction.
  • M&A transactions often involve post-closing obligations, such as integration of operations, transfer of contracts, employee transitions, and other matters.
  • Meticulous Planning for Disputes: Despite careful planning, disputes may arise during or after an M&A transaction. You must prepare yourself by communicating with a legal advisor or attorney to guide you through the process.
  • Tax Implications: Every M&A transaction has significant tax implications that can become complicated when merging entities. You must collaborate with a tax professional to facilitate a seamless synergy between the books of both parties.
  • Maintaining confidentiality during M&A negotiations is crucial to protect sensitive information.
  • Engaging experienced M&A legal professionals for advisory or representative services is essential for understanding and managing the legal complexities of the transaction.

Buyers and sellers of companies need to understand these intricate legal factors as they're pivotal in achieving a successful transaction with minimal to no future risks.

What are the Regulatory Considerations and Requirements in M&A Transactions?

Regulatory considerations and requirements in M&A transactions are crucial and include the following 10 elements:

1. Antitrust and Competition Laws

M&A transactions often require compliance with antitrust and competition laws to ensure that the resulting entity does not create a monopoly or substantially lessen competition.

Regulatory bodies, such as the Federal Trade Commission (FTC) in the United States will review and approve transactions to assess potential anticompetitive effects.

2. Securities Regulations

If the transaction involves publicly traded companies, securities regulations come into play. Compliance with disclosure requirements, insider trading restrictions, and other securities laws is crucial. Transactions may trigger the need for filings with securities regulators or require the approval of shareholders.

3. Foreign Investment Regulations

Involvement of foreign investors or crossing national borders may trigger foreign investment regulations. Governments often have regulations in place to review and approve transactions involving foreign entities to protect national interests, security, or strategic industries. These regulations may require notification, approval, or the satisfaction of certain conditions.

4. Industry-Specific Regulations

Certain industries, such as banking, pharmaceuticals, telecommunications, energy, and healthcare, have specific regulatory frameworks. M&A requires compliance with these industry-specific regulations, licensing requirements, permits, or approvals from relevant regulatory bodies.

5. Data Privacy and Security

M&A transactions involving the transfer of personal data or sensitive information must comply with data privacy and security laws. This includes ensuring appropriate data protection measures, obtaining necessary consent, and addressing cross-border data transfers in compliance with applicable regulations.

6. Employment and Labor Laws

M&A transactions often have implications for your workforce, including potential changes in employment terms, benefits, and job security.

Compliance with employment and labor laws, such as notification requirements, consultation obligations, and employee retention or transfer regulations, is essential to address these issues.

7. Environmental Regulations

If the target company of a merger or acquisition operates in industries with environmental impact, it must comply with environmental regulations. This includes assessing potential environmental liabilities, complying with environmental permitting requirements, and addressing any cleanup or remediation obligations.

8. Intellectual Property (IP) Considerations

M&A transactions involving IP assets require careful consideration of IP laws and regulations. This includes assessing IP ownership, licensing arrangements, trademark registrations, patent portfolios, trade secrets, and any potential infringement or litigation risks.

9. Regulatory Filings and Approvals

Depending on the jurisdiction and the specifics of the transaction, regulatory filings and approvals are required. These can include notifications to regulatory authorities, competition filings, foreign investment filings, or applications for specific licenses or permits.

10. Compliance with Corporate Governance Standards

M&A transactions often require compliance with corporate governance standards, such as board approvals, shareholder approvals, and adherence to fiduciary duties. Compliance with these standards ensures the transaction is conducted in the best interests of the shareholders, following applicable laws.

Involve a Legal Team Early

It's crucial to involve a legal team early when dealing with mergers and acquisitions (M&A) to enhance the likelihood of success. Many business owners make the mistake of assuming they can hire a law firm if something goes wrong. Sometimes, it may be too late.

At Calkins Law Firm, we specialize in M&A transactions and can provide the legal support you need.

Don't wait until problems arise—schedule a free consultation today to discuss your M&A strategy and ensure legal compliance and protection of your interests.

Consider Calkins Law

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Benjamin Calkins

Benjamin Calkins

Ben Calkins is a well-educated, top-rated, and highly experienced business law attorney.

Ben Calkins is an honors graduate of Harvard College and the University of Michigan Law School. After law school, he clerked for a Federal Judge before joining one of the World’s largest law firms, Squire, Sanders & Dempsey. Mr. Calkins has also worked at, and been a partner in, several of the most prominent “old style law firms” in the World.