any entrepreneurs start their business with a goal in mind: to grow the business large enough to attract a bid from a larger company. Acquisitions can result in huge paydays for founders and other early employees of a company. How an acquisition comes together and is completed will have huge implications on the company and its employees’ future. Corporate mergers and acquisitions (M&A) are highly regulated by the government. There are a lot of legal requirements necessary to protect investors, owners and employees. Anyone who is contemplating a merger or acquisition should seek legal counsel before entering any serious negotiations. Having expert legal advice will help best protect your interests and see the deal through. The following is a basic breakdown of the M&A process and how law firms like Woodall Batchelor PLLC can help you see it through.
Engagement Letter of Financial Advisor
When a company is the target of an acquisition or is seeking to be acquired, it will engage a financial advisor. Depending on the size of the deal, investment banks are the go-to advisors in today’s market. The designated financial advisor handles a variety of aspects of any M&A deal. They settle of a company’s valuation, will work to attract potential buyers, negotiate buying terms, and carry out any other wishes of the owners or board of directors. Deciding who will be the deal’s financial advisor is a crucial step. Once an advisor is decided, both parties sign an engagement letter to make it official.
Every M&A deal should have all parties enter into non-disclosure agreements (NDAs) prior to engaging in any meaningful work around the deal. NDAs protect non-public information about companies and specifics of a deal. This prevents any financial fallout in the event a deal falls through by stopping corporate secrets from being exposed.
Letter of Intent (Term Sheets)
Letters of Intent and Terms sheets are documents that lay out non-binding terms of a proposed deal. The documents explain what exactly is being acquired and for how much. It sets payment terms as well. Because they are non-binding, neither party in an M&A deal can hold the other to terms laid out in letters of intent.
The due diligence portion of M&A deals is required to ensure each party in the deal owns the assets described in the term sheets. It’s both parties’ opportunity to smoke out any discrepancies in the deal, or whether the agreed upon valuation of a company is legitimate.
Drafting & Negotiating Definitive Documents
Once due diligence is complete, both parties then begin the process of agreeing to binding terms. Binding terms are laid out in the purchase agreement and any other supplementary documents declared as binding.
Closing is the final step in the M&A process where all binding terms are agreed upon and payment is processed. Asset ownership changes hands and the deal is finalized.
For expert M&A legal advice, contact Woodall Batchelor PLLC. We have a track record of providing professional M&A consultation and due diligence for our clients and can work with you to protect your company and the assets you’ve worked so hard to build.