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Mergers and acquisitions (M&A) transactions are never the same. More complicated transactions tend to take on different structures depending on a number of factors, varying from, among other things - the size of the transaction; any international elements; employees the target company might have; competition matters; regulatory implications; fiscal considerations and the relationship between the parties.
That said, generally, an M&A transaction, be it an acquisition of shares in the target company or an acquisition of the business of a target entity, tends to follow more or less the process outlined in more detail below. Naturally, the said process is not set in stone, and may differ depending on the complexity of the transaction at hand. Indeed, in a more straightforward M&A transaction, some of the stages outlined below might be shortened or outright skipped.
Whenever a purchaser is yet to be found, it is standard practice for an M&A transaction process to commence by means of an information memorandum. The Information Memorandum is generally drawn up by the vendor and published with a view to gauge market interest and ultimately sell the company/ group of companies/ their business or part thereof for maximum value.
An Information Memorandum usually contains enough information to provide the potential purchaser with sufficient detail to understand whether it would like to pursue the acquisition of the target company/ business, without divulging any confidential or sensitive business information of the said target.
Should a purchaser be interested in acquiring the target company or its business, the interested purchaser or purchasers, if more than one, would generally enter into a Non-Disclosure Agreement (NDA) which is aimed at securing the confidentiality of the target company and the sensitive data concerning its business.
Whenever there is more than one potential purchaser involved, this second phase is usually preceded by the due diligence exercise which is outlined below. However, if there is only one potential purchaser in the fray, before or simultaneously with the commencement of the due diligence exercise, it is common for the parties to start considering certain matters which should precede the contractual phase of the sale. Such matters, include the following:
competition/antitrust law implications, and whether such transaction necessitates pre-clearance from the Office for Competition;
employment law considerations;
licensing matters; and
fiscal implications, amongst others.
It is also common for the potential purchaser and vendor to outline the proposed terms and conditions underlying such acquisition in a letter of intent, which in most cases is (or for the most part is) not legally binding.
It is common practice at this stage, for a due diligence exercise on the target company or target business to be carried out. In most cases where there is one potential purchaser, the due diligence exercise is carried out by advisors engaged by the said purchaser, in which case it would be referred to as a buyer due diligence.
A vendor may also decide to carry out a due diligence exercise itself for a number of reasons. Principally, a vendor due diligence may facilitate a sale (in which case the potential purchaser may decide to rely on such due diligence and secure its position by warranties and indemnities) or spot any potential issues which might hinder the sale, effect the price/ negotiations or have an impact on the warranties that it can provide to the purchaser.
A due diligence may cover legal, fiscal as well as financial areas and the main aim of such exercise is to identify the key risks that may arise from the potential transaction, determine fair pricing and increase bargaining power. From a legal standpoint, the due diligence exercise itself may span over a number of issues in order to thoroughly examine the target or its business, such as: corporate matters, contractual and commercial obligations, employment, data protection, intellectual property, insurance, regulatory and compliance matters.
Once the due diligence exercise is finalised, the prospective purchaser will typically go over and consider the findings and their materiality to the transaction together with its advisors. Should the purchaser be still interested in proceeding with the acquisition, the parties would typically engage in negotiating the details of their transaction, and all terms and conditions thereto. This may also involve negotiating the final price or agreeing on a mechanism that would determine the sale price and the details of the warranties, the indemnities and any limitations which will then be included in Share Purchase Agreement (SPA) or an Assets Purchase Agreement (APA), depending on whether the transaction will involve the acquisition of shares or of the business.
It is common for the SPA/ APA to include clauses that come into effect post-closing, such as further obligations that are to be undertaken by the parties, finalising the transfer of additional assets; obtaining consents, issuing notifications, affecting a price adjustment mechanism or entering into other ancillary contracts.
Besides implementing such post-closing matters, the parties may consider undergoing a post-closing integration exercise in order to bring the two companies or businesses together with the aim of maximising synergies to ensure the success of the deal.
Our Firm is well placed to assist you and your organisation with all the advice you may require throughout the various stages of a merger and acquisition transaction.
Should you require further information or any assistance in this regard, please do not hesitate to contact us.
This document does not claim to give any legal, financial or tax advice.
Tax Partner, PwC Malta
Tel: +356 2564 6744
Senior Manager, PwC Malta
Tel: +356 7973 8480