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The Role of Legal Experts in Mergers and Acquisitions


— November 2, 2023

If your company plans a merger or acquisition, you must prioritize hiring a legal consultant to get ahead of the process. 


All businesses run on contracts and collaborations, ranging from day-to-day partnerships to complete mergers and acquisitions. Mergers happen when two companies join into one. Acquisition is another similar business phenomenon when one company buys another. While they may appear similar, the processes differ completely in the power dynamics involved. 

In mergers, the participants voluntarily join forces, and both partners stand to gain equally. However, the purchasing company has more power in acquisitions and gains complete control over the other company. 

Like all business transactions, you require proper contracts for mergers or acquisitions (M&As). There are several legal issues to resolve when two companies join together, making hiring legal experts a necessity. If your company is in such a situation, you can visit this website to find legal experts to hire. Here are the key responsibilities of legal experts during a merger and acquisition case:

  1. Compliance With Laws

During a merger or an acquisition, your companies are subjected to a complex web of regulatory requirements. These can be too complicated for your resident lawyer to navigate, and you should consider consulting with experts specializing in mergers.

For example, you can risk breaking the antitrust laws that exist to ensure fair competition in the market. Without these, there is a risk of business monopolies that can lead to artificial price hikes for customers. When you try to buy or merge with another company, you must ensure the transaction is not monopolistic, or it can violate the antitrust laws. 

When two companies merge, their cumulative market share increases. High market concentration can cause competition to decrease. If the Federal Trade Commission (FTC) assesses that your merger will generate reduced competition, they will not allow it. 

Here’s when having an expert lawyer will come in handy. They will guide you through the divestiture process. During divestiture, you will sell some business units to a third party so your market power does not increase too much. An expert lawyer will help you identify which assets you should sell to ensure compliance. They will also structure your deal to promote competition and negotiate with the regulating authorities if needed.

Similarly, there are several tax law considerations during an M&A process, especially in the case of international mergers where the tax laws of the two countries can be radically different. Here, your lawyer ensures that the tax laws of both countries are followed after the merger. Legal experts also dig into the target company’s legal history and conduct comprehensive tax due diligence to uncover any tax liability that can hurt you after the merger.

  1. Drafting Agreements

You will require someone highly skilled at negotiating and drafting your merger or acquisition deal. When you propose an M&A, you must provide the Letter of Intent (LOI) outlining the preliminary terms and conditions. However, as this is a preliminary document, it should be non-binding and provide an exit clause. A legal expert can help you define the LOI’s scope to ensure terms like pricing and structure are non-binding while exclusivity provisions are binding.

Next, you must draft a purchase agreement to formalize the merger’s terms and conditions. Here, a legal expert will ensure that all terms and conditions are discussed in detail, there is no loophole, it does not break any laws, and your financial interests are protected.

Woman holding sign that says Read the Fine Print; image by Geralt, via Pixabay.com.
Woman holding sign that says Read the Fine Print; image by Geralt, via Pixabay.com.

Lastly, you must prepare confidentiality agreements such as NDAs so confidential information does not leak during the process. An M&A expert will define the scope of the NDAs and determine the remedies in case of a breach. 

  1. Value Enhancement

You might think that legal experts only mitigate legal risk during an M&A process and ensure legal compliance. However, they are also integral to value enhancement. In other words, they don’t only help you avoid breaking the law; they also ensure your agreement is as beneficial as it can be.

Legal experts collaborate with financial and strategic advisors to find opportunities for synergy between the merging companies.  One way they do it is by identifying areas of complementarity. For example, they can determine how the two company’s distribution channels can merge and reach new markets. They can also identify redundancies like roles with overlapping job descriptions and remove them in a legal-compliant manner to increase efficiency. 

Another way legal experts cause value enhancement is by structuring M&A transactions in a tax-efficient manner. Through this, they minimize your tax burdens and may even get you tax benefits. 

Endnote

The M&A process is complicated for any company. You must check if the companies are compatible and if the merger would be profitable. You must draft the agreements and negotiate the terms and conditions. And you have to check that you perform your merger in a legal-compliant manner.

Legal experts specializing in M&A can help you with the convoluted merger process. If your company plans a merger or acquisition, you must prioritize hiring a legal consultant to get ahead of the process. 

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