A merger is a transaction where two or more businesses join to form a new entity, typically with the goal of expanding market reach or combining resources. 

An acquisition refers to a transaction where one party purchases a business, either by acquiring its shares or assets. The acquirer gains control over the acquired business’s operations, assets, and liabilities.

An asset purchase involves the buyer acquiring select assets and rights and sometimes assuming responsibility for certain liabilities relating to the target business. The buyer can essentially cherry-pick the assets they want.

A share purchase involves the buyer acquiring the shares in the business (including all of its assets, liabilities and obligations) from the shareholders.

Before you make a business deal, it’s important to know everything you can about what you’re getting into. This means understanding exactly what you’re buying, the debts you’ll be responsible for, and any future challenges that might be waiting around the corner like unsettled legal disputes or difficult contracts.

To be sure you’re making a wise decision when merging with or buying another company, here’s what you should look into:

The seller’s financial health: This includes their financial records, the value of their assets, their tax liabilities, and how well they’ve been doing business-wise.

The seller’s competitive position: You’ll want to know their place in the market, how much they know about their industry, who their competitors are, and what kind of technology and intellectual property rights (like patents and trademarks) they have.

The seller’s potential liabilities: Are there any ongoing legal disputes or restrictions that could affect their business? Also, make sure they have the right to use all the software needed for their business operations.

The seller’s contracts: What contracts have they signed and what are the terms?

The seller’s day-to-day operations: Get to know their business structure, what kind of insurance they have, who works for them, how their management team operates, their future sales prospects, and who their customers are.

Typically, if the market perceives the M&A as beneficial, the share price of the acquiring business might rise, offering immediate gains to its shareholders. Conversely, the shareholders of the business being acquired often see a premium on their shares. However, if the M&A is viewed negatively, it might depress share prices. Beyond immediate price effects, shareholders might experience changes in their percentage of ownership, dividend payouts, and the overall risk profile of their holdings.

The impact of a merger or acquisition on employees can vary widely depending on the specific circumstances, the cultures of the merging companies, and the strategies employed by the acquiring business.

Concerns about job security surface, as potential redundancies or new roles emerge.

The blending of divergent company cultures might trigger clashes, impacting morale.

There might also be shifts in priorities due to management changes.

Furthermore, employees could encounter adjustments in benefits, face potential relocations, or grapple with increased workloads and the need for new training.

The importance of talent retention and legal employment protections become paramount. To ensure a smooth M&A process, maintaining open communication and providing adequate support to employees is vital.

Solicitors provide essential legal guidance to ensure the transaction aligns with relevant laws and regulations. They lead the due diligence process, meticulously examining the target business’s legal standing to uncover potential risks or liabilities.

Additionally, solicitors draft, review, and negotiate important documents, to safeguard their client’s interests and facilitate a smooth completion.

Heads of terms, sometimes a “letter of intent” or “memorandum of understanding”, are a preliminary agreement outlining the main points of a deal when selling a business.

They act as a guideline for the preparation of the sale and purchase agreement. Typically, they are not legally binding, but benefit the parties by providing an opportunity to agree on the key terms of the transaction before the final contracts are drawn up.

This changes from case to case. Typically, we advise a timeframe of three months from heads of terms.

Several factors can affect the time it takes to sell a business, such as the speed at which the parties and their advisors act, the complexity of the transaction, the time it takes for due diligence, and the ease of negotiations.