Mergers and acquisitions (M&A) are major events for businesses, involving legal processes and financial transactions. Whether you're a business owner, investor, or legal professional, understanding M&A law is crucial. In this guide, we break down the key stages, UK laws, and the role of M&A lawyers.
What is M&A law?
M&A law governs the buying, selling, and merging of companies. It ensures that all legal aspects of a deal - such as due diligence, contract negotiations, and regulatory compliance - are properly handled.
This area of law is designed to protect the rights of everyone involved, including shareholders, employees, and stakeholders. M&A transactions must also comply with corporate law, competition rules, tax regulations, and employment laws, all of which can influence whether a deal goes ahead or falls through.
đź’ˇ Why it matters: M&A deals are complex and high-stakes. Having the right legal guidance can make all the difference in ensuring a smooth, legally compliant transaction.
M&A legal stages explained
M&A transactions follow several stages, each controlled by the law. Below is a guide to the key stages:
1. Preparation and strategy development
Before the merger or acquisition process begins, the companies involved will work together to make a plan. They will identify potential targets or buyers, and consider the market and financial environment. They’ll determine the best structure for the deal (merger, asset sale, share purchase, etc.).
Legal considerations during this stage:
Following relevant UK laws, such as company law, tax law, and anti-competition regulations.
Discussing non-disclosure agreements (NDAs) to protect business information.
2. Due diligence
Due diligence is one of the most important phases in M&A law. It involves investigating and reviewing the financial, legal, and operational aspects of the company. This offers clarity before the merging or acquiring begins. The goal is to identify any risks, liabilities, and opportunities before the completion of the transaction.
Legal considerations during this stage:
Reviewing corporate governance, contracts, intellectual property rights, debts, and liabilities.
Making sure that all financial statements and tax filings are accurate and up to date.
Checking for any pending or potential legal battles that could affect the deal.
3. Negotiation
Once you’ve completed due diligence, the companies involved enter the negotiation phase, where they discuss the terms of the deal. This includes the price, the structure (whether it will be a share purchase, asset purchase, or merger), and the timeline for completing the transaction.
Legal considerations during this stage:
Drafting term sheets and letters of intent (LOIs) to establish the agreement.
You need to discuss the terms of payment and the rights of shareholders. You should also look at potential earn-outs or performance-based compensation.
4. Signing the agreement
Once you have both agreed on the terms, the next step is to sign the agreement. This formalises the transaction. This document will outline all terms. This will include the price, payment methods, conditions for closing and any conditions after the agreements.
Legal considerations during this stage:
Before you sign, make sure all conditions (e.g., regulatory approval, shareholder approval) are met.
Confirm any representation and warranties about the company’s status, operations, and financial position.
5. Closing the deal
The closing marks the final step of the transaction. During this stage, you transfer ownership, make payments, and you obtain any regulatory approvals.
Legal considerations during this stage:
Make sure you sign all closing documents, including stock transfers, legal filings, and payment receipts.
You need to follow legal or regulatory requirements to finalise the deal.
6. Post-transaction
After the transaction closes, companies must combine their operations, systems, and culture. This may include employee changes, management restructuring, and sorting business operations.
Legal considerations during this stage:
You need to consider any legal issues post-transaction. This could include post-closing obligations or dealing with disputes.
Make sure the companies follow the terms of the deal and put in place any required corporate changes.
Are there any UK laws for mergers and acquisitions?
Yes, the UK has several key laws and regulations that govern mergers and acquisitions (M&A). Here's an overview of the most important ones:
The Companies Act 2006
The Companies Act 2006 is the primary legislation overseeing the formation, operation, and dissolution of companies in the UK. It outlines the responsibilities and duties of directors, shareholders, and creditors during M&A transactions. The Act specifies requirements for shareholder approvals, disclosure obligations, and voting rights. It also includes provisions to protect minority shareholders during takeovers.
The Takeover Code
Formally known as The City Code on Takeovers and Mergers, this set of rules is administered by the Panel on Takeovers and Mergers. It primarily applies to public companies in the UK and ensures that takeovers are conducted fairly and transparently. The Code outlines procedures for making offers, sets timelines, and defines the obligations of both the offeror (the party making the offer) and the offeree (the target company). It mandates the disclosure of financial information and ensures equitable treatment of all shareholders during a takeover.
The Enterprise Act 2002
The Enterprise Act 2002 grants the Competition and Markets Authority (CMA) the authority to review and intervene in mergers that could significantly lessen competition within any UK market. The Act establishes the framework for merger control, requiring companies to seek approval for substantial mergers and acquisitions. The CMA can investigate and potentially block deals that may lead to anti-competitive behaviour or harm consumers.
EU Law (in the case of cross-border mergers)
EU competition law still applies to mergers and acquisitions that involve companies based in EU regions. The EU Merger Regulation addresses the potential effects of mergers that may affect competition within the EU.
The European Commission investigates and clears cross-border mergers between large companies. They do this in cases where they meet certain turnover thresholds.
What does an M&A lawyer do?
A lawyer for buying a business plays a critical role during the merger or acquisition process. They can offer legal advice and make sure that the transaction complies with all relevant laws and regulations. Some of the key responsibilities of an M&A lawyer include:
Due diligence: Reviewing all legal and financial aspects of the transaction.
Drafting agreements: Preparing term sheets and letters of intent. They also create definitive agreements that outline the terms of the transaction.
Negotiation: They represent the client during negotiations. This can help to secure the best deal terms.
Regulatory compliance: They make sure that the transaction complies with relevant laws. We have a thorough knowledge of competition law and company law.
Closing the deal: They compile the proper documentation. They make sure all necessary approvals have been obtained so that the deal is closed successfully.
đź’ˇEditor's insight: “You might not realise but M&A lawyers can also help you with any issues after the transaction. They’ll address these post-transaction issues that might include disputes over the agreement. There may be issues with both parties following regulations or merging the two operations.”Â
Final thoughts
Mergers and acquisitions (M&A) law plays a vital role in business transactions. Whether you're buying, selling, or merging a company, understanding the legal requirements is essential. From due diligence to final agreements, every stage requires careful planning and legal expertise.
đź’ˇ Need expert guidance? Our corporate lawyers can help you navigate the process with confidence. Get in touch today to see how we can help.
References
Competition and Authority by Gov.UK
Competition Policy by the European Commission
Disclaimer: This article only provides general information and does not constitute professional advice. For any specific questions, consult a qualified accountant or business advisor. Bear in mind that tax rules can change and will differ based on your circumstances.
