Brief outline of legal aspects related to mergers & acquisition.
Posted August 8th, 2012
A merger or acquisition of one or more companies is a managerial process, as well as a business economical and legal process.
The interest to merge or acquire often has a managerial or business economical origin, which may come from an expectation to being able to lower costs due to economies of scale, or from a desire to become less dependant on certain suppliers.
The legal aspects of such a transaction are also crucial. Therefore, it should not be surprising that at the beginning of such a transaction (or even before it is certain that such a transaction will take place) all parties concerned form take-over teams, consisting of lawyers, management experts, economists and tax specialists.
As long as the process is not interrupted, or discontinued, the transaction parties mutually engage in a series of agreements. Examples of such agreements are a confidentiality agreement and a stand still agreement.
Once the negotiations start to take shape, the parties can conclude a letter of intent through which parties can commit one another to several basic issues up until committing one another to an almost complete package of agreements related to the intended transaction. Such a letter of intent is, in large part, the basis of the due diligence investigation that should ensure the transaction parties (and especially the buyer) that there are no 'skeletons in the closet'. If the parties wish to continue the transaction process after this investigation, they need to negotiate the content of the purchase agreement in which, next to the purchase price, also matters such as (resolutive) conditions, representations and warranties will be addressed.
This entire process from initiative up to and including closing date requires much expertise to adequately serve the interests of all stakeholders, including shareholders and employees.
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