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The Landscape of mergers and acquisitions law
May 27, 2024
6 min read
Table of contents
In 2024, dealmakers face unique challenges, such as economic volatility and increased regulatory scrutiny. To overcome these hurdles and achieve successful deals, it’s critical to follow mergers and acquisition law closely.
This article explains why M&A law matters, outlines the typical legal steps in a deal, and highlights the crucial role of M&A lawyers in ensuring success.
What is M&A law?
M&A law is a branch of corporate law and refers to the legal framework that governs the process of companies merging or acquiring one another. More precisely, it encompasses various regulations, statutes, and legal principles that dictate how these transactions should be conducted.
M&A law is a complex and multifaceted practice area and may involve navigating antitrust regulations, federal securities laws, tax implications, contractual agreements, and corporate governance issues. That’s why the role of law in M&A deals is pivotal — it protects the interests of both the buyer and the seller and facilitates transactions.
Typically, M&A transactions take a significant amount of time, often ranging from several months to over a year, depending on various factors. These factors can include regulatory approvals, extensive due diligence processes, negotiations over terms and conditions, and complexities related to financing arrangements.
Therefore, for a smooth and efficient M&A process, it’s always recommended to hire a lawyer who is competent in business law and has M&A experience.
We see more transactions in a year than most people at companies see in their lifetime so we are well placed to make an assessment on when deals make sense
Co-head of a mergers and acquisitions law firm Simpson Thacher & Bartlett
Frank Aquila, M&A attorney, adds — “There are plenty of good deal lawyers in the world who, when confronted with challenging facts, will tell a client that it is impossible to complete a transaction.”
Typical M&A legal activities at each deal stage
Various legal activities occur at each stage of the merger or acquisition process. Here are the details on these stages and the corresponding legal activities.
1. Preparation and planning
- Due diligence
Conducting due diligence on the target company’s legal documents, contracts, financial records, and potential liabilities. Refer to our comprehensive M&A due diligence checklist for a detailed overview of the documents that should be reviewed during this process.
- Structuring the transaction
Collaborating with financial advisors and other stakeholders to determine the optimal structure for the transaction, considering tax implications, regulatory requirements, and business objectives.
- Drafting initial documents
Preparing a letter of intent (LOI) or term sheets outlining the proposed terms and conditions of the deal.
2. Drafting and negotiating
- Negotiating terms
Engaging in negotiations with the target company to finalize the deal terms, including purchase price, payment terms, assurances, and other essential aspects.
- Drafting transaction documents
Drafting and finalizing the definitive agreements based on the findings made in the due diligence process. They should include the purchase agreement, shareholder agreements, and ancillary documents, detailing the rights and obligations of each party.
3. Regulatory compliance and approval
- Antitrust review
Ensuring the new entity is compliant with federal and state regulations by obtaining necessary approvals from regulatory authorities, such as the Federal Trade Commission (FTC) or the Department of Justice (DOJ).
- Securities compliance
Advising on securities laws and regulations applicable to the transaction, including filings with the Securities and Exchange Commission (SEC) and compliance with disclosure requirements.
4. Closing the deal
- Closing preparations
Coordinating the final steps leading up to the closing of the transaction, including the transfer of funds, execution of closing documents, and satisfaction of closing conditions.
- Post-closing matters
Assisting in merging the acquired company with the buyer’s operation, addressing any remaining legal issues, and ensuring adherence to regulatory requirements.
The role of M&A lawyers in a successful deal
A mergers and acquisitions lawyer may take on a number of responsibilities. Here are the most essential ones:
- Adviser
M&A lawyers conduct thorough due diligence to uncover legal risks and liabilities. They also guide legal compliance, including security, antitrust, and foreign investment laws. Additionally, they structure M&A deals to align with a client’s business goals, considering tax implications and other legal factors.
- Mediators
M&A lawyers facilitate the resolution of disputes related to purchase price changes, representations, and indemnification. They manage conflicts of interest to maintain transaction integrity and coordinate communication between stakeholders to ensure effective negotiation.
- Negotiator
M&A lawyers assist in developing negotiation strategies. They also analyze relevant documents and assess legal risks before the negotiations. After that, they help negotiate favorable terms.
- Drafter
M&A lawyers must document deal terms, including purchase agreements and representations. They draft and review M&A due diligence documents, corporate governance materials, and ancillary agreements. Additionally, they prepare post-transaction documents essential for finalizing M&A transactions.
The areas of expertise of an M&A lawyer should include:
- M&A corporate law and governance. Understanding various corporate structures and entities, advising on governance issues, compliance, and risk management.
- Security regulations. Familiarity with laws such as the Securities Act of 1933 and the Securities Exchange Act of 1934, including securities registration, reporting requirements, and disclosure obligations.
- Tax law. Proficiency in corporate tax, capital gains tax, and other tax implications relevant to M&A transactions.
- Contract law. Drafting and negotiating agreements specific to acquisitions, joint ventures, and shareholder responsibilities.
- Intellectual property law. Knowledge of IP law related to due diligence, ownership rights, valuation, and regulatory compliance.
- Antitrust law. Providing legal advice on merger control, compliance, litigation, and enforcement.
- Employment law. Guidance on employee transfers, benefits, labor relations, and compliance.
- Environmental law. Understanding relevant permits, reporting requirements, insurance, and environmental liabilities.
Tip: Consider hiring an M&A lawyer with experience in both domestic and cross-border transactions, covering both public and private M&A deals.
The most common legal aspects and risks of M&A
The table below describes key legal aspects and associated risks in M&A transactions, along with corresponding mitigation strategies.
| Risks | Possible implications | Mitigation strategies |
| 1. Regulatory compliance issues | Non-compliance with regulatory requirements may lead to fines, penalties, or regulatory interventions. Failure to comply with regulations can also delay or totally ruin the deal. | Conduct thorough due diligence to identify regulatory requirements and ensure compliance. Engage experienced M&A lawyers to provide guidance on regulatory compliance and assess risks. |
| 2. Undisclosed liabilities | Undisclosed liabilities, such as pending lawsuits or tax obligations, can result in financial losses for the acquiring company. Acquiring unexpected liabilities may affect the valuation of the target company and the overall success of the deal. | Conduct comprehensive due diligence to uncover potential liabilities and financial obligations. Negotiate representations and warranties in the purchase agreement to protect against undisclosed liabilities. |
| 3. Breaches of representations and warranties | Breaches of representations and warranties may result in financial losses or legal disputes between the parties. Inaccurate or misleading statements can damage trust between the parties and make it harder to integrate after the transaction. | Engage M&A lawyers to draft precise representations and warranties to accurately reflect the state of the target company. Include indemnification provisions in the purchase agreement to address breaches and allocate risk appropriately. |
| 4. Closing conditions | Failure to meet closing conditions may result in the deal falling through, causing reputational damage and financial losses, including wasted transaction costs. | Ensure all closing conditions outlined in the definitive agreement are met before proceeding with the transaction. Communicate effectively with all parties involved to expedite the process and minimize delays. |
FAQ
Corporate M&A law governs the legal aspects of companies merging or acquiring one another. It’s crucial because it ensures that these transactions comply with regulations, protect the interests of all parties involved, and mitigate risks.
M&A lawyers provide essential guidance throughout the transaction, from conducting due diligence to negotiating and drafting agreements. They ensure legal compliance, protect their clients’ interests, and help navigate complex legal issues that may arise.
Businesses can ensure success by engaging experienced M&A lawyers early in the process, conducting thorough due diligence, carefully negotiating and drafting agreements, and maintaining open communication between all parties involved. Proactive legal planning and risk management are key to a successful M&A transaction.
Yes, M&A transactions are subject to various regulations depending on the jurisdictions involved and the industries of the companies. These regulations may include antitrust laws, securities regulations, tax laws, and foreign investment rules.
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