This blog post is written by Ms. Ritu Sajnani.
What do you mean by the term M&A?
Mergers and acquisitions (“M&A”) are transactions in which two businesses combine in some way or the other. Although the terms ‘mergers’ and ‘acquisitions’ are used interchangeably, they have distinct legal meanings. A merger is the joining of two companies of similar size to form a new single entity. As opposed to this, an acquisition occurs when a bigger corporation buys a smaller one, taking over that smaller company’s operations.
One of the key facets of corporate finance is M&A. The general justification for M&A is that integrating two different companies together generates more value than doing it individually. Companies regularly evaluate opportunities through the merger or acquisition pathway in order to optimize wealth.
Major reasons to participate in an M&A Deal
- Growth: In most instances, inorganic expansion through M&A is a faster approach for a company to boost revenues than growing organically. Instead of taking the risk of creating the same capabilities internally, a business can benefit by acquiring or merging with a business that has the most recent capabilities.
- Synergies: Synergy, which is most frequently used in M&A, is the extra value generated by a deal. When a transaction has synergy, it signifies that the combined value of the new business will exceed the combined value of the parts working independently.
- Tax benefits: When one business/company generates a substantial amount of taxable income and another experiences tax loss carryforwards, tax benefits are examined. The acquirer can use the tax losses to reduce its tax obligation by purchasing the business/company with the tax losses.
- Increased market share: A new product is introduced to one firm’s existing brand portfolio as a result of the merger. The union gives business owners access to a wider client base, which helps them in gaining a large market share.
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Things you need to know before kick-starting work on an M&A Deal!
As an M&A lawyer, you are required to wear multiple hats. That of a good draftsman, that of a diligent mind, and most importantly – of a good negotiator. M&A deals require you to be meticulous on top of every step – be it, in understanding the context of the deal, carrying out the lengthy diligences, or achieving closing.
Following are the Must-Have Skills that an M&A lawyer needs to possess:
- Negotiation: It won’t be simple at all when we’re talking about negotiating an M&A deal. One side, the buyer, would consistently seek the best conditions and lowest price. The seller, on the other end, would undoubtedly want to reap the rewards of his labour and maximise his sale price, and certainly, with generous conditions as well. A settlement or agreement is reached through the mutual discussion and structuring of the terms of a transaction known as negotiation. When it comes to M&A, negotiation is the most crucial component. It is at this point that the agreement either comes together as anticipated by the negotiators or breaks down. The signing of a letter of intent is the first step in the protracted process of negotiation, which often lasts until the very end of the deal. A purchase or merger is solely the result of negotiations. M&A transactions frequently cost hundreds or even thousands of crores, and a skilled negotiator is capable of changing the game.
- Due diligence: Due diligence is the procedure of acquiring and confirming essential information about a business or a person to enable the parties to make an informed decision. Due diligence is beneficial to both sides in any M&A scenario. The term “due diligence” refers to a thorough investigation of all important business factors like the financial, operational, tax, commercial, tax, IT, integrity, health and safety, and regulatory aspects. The evaluation of the business’s assets, liabilities, and other aspects is considered by a potential buyer as a thorough appraisal of the enterprise.
- Problem-solving: It is crucial to be able to absorb and analyse complicated information and understand the challenges they raise on a practical level. The next stage is to come up with a legitimate and practical solution. One essential attribute that any commercial lawyer must have is the ability to solve problems. A smart commercial lawyer must be able to detect and spot potential deal-killers as well as engage in firefighting when it comes to issues raised by transactional specifics.
- Hold over theoretical concepts: It’s also advised to have a thorough awareness of current legal changes and statutes. The majority of laws are opaque amalgamations of difficult language that demand in-depth understanding. The law changes from time to time, and the lawyer is expected to be aware of any new notifications issued by regulatory authorities, formalities that have been implemented and ways to get over any obstacles that may arise while applying the law.
- To know your client: Understanding the deal’s backdrop and your client’s motivation for engaging in that M&A deal is crucial at the very beginning of the transaction. The only way you will be able to present your client’s important request is if you are aware of their goals. As a lawyer, it is always your responsibility to make sure that your client benefits from the arrangement in all respects and is satisfied with it.
Deal Table: Dos and Don’ts
If you want to make that deal work in your favour, keep an eye out for a few things that will help you.
- First and foremost, maintain composure; otherwise, you risk making a mess of yourself and losing control of the situation.
- You must treat the other party with the utmost respect and courtesy. It’s your obligation to communicate your points and agenda across the table in a precise and understandable manner.
- Being an excellent listener should always be a priority. Always listen to what the other person is saying.
- Always be well-prepared and diligent because doing so will enable you to close a number of clauses in your transaction agreements.
- Ensuring that your client’s request is met is one of your main duties as an M&A lawyer.
- Time is of the essence when it comes to M&A, therefore you should always be proactive and prompt.
