As in-house counsel, you may be called upon to participate in M&A deals from time to time, depending on the size of your company and your role at the company. Your company might engage outside counsel from a large law firm as well as the help of investment bankers to close the deal. Nevertheless, you want to know the basics of M&A.
Assume that you are counsel for a small company and a buyer has expressed interest. What's next? Here are some quick things to know about the M&A process.
The parties involved: You obviously know the key terminology of the M&A process. The company being sold is the "target" and the company acquiring is typically the "buyer." The merger may also be called a "purchase", an "acquisition" or a "reorganization".
Due diligence. The buyer will do due diligence on the target company. This will be like an audit, but the scope will go beyond the financial statements. In addition to your company's finances and projections, the buyer will be interested in looking at ownership interests, outstanding contracts and potential legal liabilities. As in-house counsel, you will need to gather these documents and make sure that you look over any and all legal issues you can find in these documents prior to submitting them to the buyer.
The types of transactions. The buyer might be acquiring all of the assets with cash (asset purchase) or they might be acquiring the stock (stock purchase). They might also acquire the assets and/or stock by swapping their company's stock (stock for assets transaction or stock for stock transaction).
The tax-free reorg. One common type of transaction involves the merging of the target entity into a newly formed subsidiary of the buyer (the subsidiary is usually called "Newco" among the lawyers). Newco takes the assets or the stock of the target. Eventually, Newco liquidates and the assets of Newco flow to the buyer, which is the parent company of Newco. There are some inherent tax reasons why corporate attorneys like to do the transaction this way.
Representations and Warranties. As part of the purchase agreement, you will be asked to look at a statement of representations and warranties made by your company. This is an important document and as in-house counsel, you will have a firmer grasp on these items than the outside counsel will have. Pay close attention to the details on these documents.
This isn't a comprehensive guide, as M&A law is complex and full of technicalities. But it is a place to get started. Have a look at some of our related resources below to research more on the M&A process.