Mergers & Acquisitions

Although these terms are often mixed together, legally speaking, the main differences between a merger and an acquisition are:

• A merger is the combination of two companies, usually into a new company. The previous companies are then dissolved. Mergers are often perceived as ‘friendly’ and, in theory, a merger can result in the two companies becoming equal partners in the new company.
• An acquisition is a company purchasing another, usually smaller, company (or a controlling interest in its shares). Where the target is a listed company, an approach by a potential acquirer is sometimes unwelcome, and the transaction is termed a “hostile takeover”. However, with private limited companies it is virtually impossible for one company to acquire another unless all parties are willing. The acquired company becomes a subsidiary of the acquiring company, so unlike a merger, no new company is created.

A solicitor will nearly always be necessary for a merger or acquisition. Mergers are legally complex, and an acquisition will require the negotiation of a share purchase agreement, which is usually a lengthy document. If you are selling a company, you will need legal advice to minimise the risk of any claims being brought against you by the buyer after the sale is completed.

Before merging with or purchasing another company, the buyer will need to be fully aware of the assets and liabilities of that company. This is why it is important to instruct a solicitor and other professionals to carry out rigorous due diligence. Due diligence will fall into these broad areas:

• Financial
• Strategic/commercial
• Legal
• Operational