What’s the deal with mergers and acquisitions?

Beyond the umbrella term, many aspiring corporate solicitors are unaware of the specific practice areas within the corporate bracket. Mergers and Acquisitions (M&A) is a corporate specialism that handles financial transactions which origin the consolidation of corporations or entities. Although, confusion often lies in separating these definitions, particularly because the end result is so similar. 

The term ‘merger’ refers to the joining of two companies to form a new legal entity under one name. In May earlier this year, Virgin Media and O2 confirmed their £31 billion merger deal, intending to compete with market-dominating companies such as Sky and BT. 

The term ‘acquisition’ concerns the purchase of a company’s assets or shares by another company. Although the parent company gains ownership of the acquired firm, their structure and legal name typically remain unchanged. On the 6th of July, Uber announced their intention to acquire market-rival Postmates for $2.65 billion; although, this is subject to scrutiny and regulatory approval. 

What is the urge to merge?

“The UK experienced a huge drop in M&A activity in 2019 – with inward investment dipping by almost a third, and domestic activity seeing a reduction of 69%” – Barney Cotton with statistics from the Office for National Statistics

Industry trends also have a strong influence on M&A activity and the reasons for this are industry-dependent. For example, the drive for technological advancement has meant that technology companies are considering M&A in the pursuit of new products and ideas, more knowledgeable employees and strategic relationships. Microsoft recently acquired Softomotive to expedite their Robotic Process Automation capabilities, demonstrating the continuous search for market-dominating companies for skill strengthening and innovation in order to remain competitive. 

Breaking down the M&A timeline

Although time is money, rushed and inadequate preparation for a M&A transaction will cost the business. Throughout the following timeline, lawyers are tasked with drafting documents, giving legal advice and conducting due diligence. 

Firstly, the company buying must evaluate their corporate strategy and consider their strategic objectives. Common objectives include: profitable growth, portfolio management and globalisation. Following this, a target candidate pool should be established which is in line with the buyer’s objectives. The next stage is critical – the valuation stage. Financial documents such as an income sheet and cash-flow statement with previous, current and forecasted figures must be compiled to determine the likely profitability of the transaction. Lawyers must then conduct due diligence into the target company, reviewing their financial competency, market position, tax compliance and corporate objectives. Other factors which are significant to the buyer company’s strategic objectives may be considered such as location (globalisation), human capital (skill strengthening) and current contracts (portfolio management). Subsequently, a transaction is structured to signify deal execution. Post-deal integration involves the practical consolidation of the companies, which should be gradual and delicate to ensure a seamless transition. 

Why become an M&A solicitor?

A particular interest in business infrastructure and the internal operations of companies will suit you to M&A. The process of M&A may sound formulaic, but each client presents a complex transaction which is accompanied by unique difficulties such as cross-border transactions. In addition to the complexities, this specialism is extremely fast-paced meaning that lawyers are kept on their toes at all times.

Lawyers work on transactions in a team; thus, good communication and collaborative skills are required. Commercial awareness is also an essential skill to ensure the legal advice offered to clients in significant transactions is relevant and industry specific.

Conclusion

M&A is a challenging yet rewarding practise area, which is not restricted to candidates with a financial or economic educational background. An understanding of the fundamentals of transactions will put you at an advantage over your peers and this will be developed further with better commercial awareness surrounding current M&A activity.

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