Week 9 Law

What is an M&A (Merger and Acquisition Transaction)

When businesses combine by aquiring or merging with other businesses

What is the most typical form of acquisition?

Buyer takes over a business by buying a company’s assets or company shares/equity

What is a merger

Combining 2 entities into a single company

What happens in a share sale (2)

Owner sells shares and transfers ownership to buyer

Company keeps assets and liabilities, owner just inherits them

1 pro and 1 con for buyers in a share sale

Company can continue business operations easier

Buyer can inherit unknown liabilities

What happens in an asset sale

Company sells specific assets to buyer

Selling retains ownership of company

1 pro and 1 con for buyers in an asset sale

Less tax to pay.from assets

Buyer needs to obtain new licenses if it does not have its own

3 steps to Preparing the Business for sale

Make the company as clean and presentable as possible

Seller must prepare to have information about the company prepared

Assemble the right legal and financial advisors

2 steps to Sale by Auction

Get external advisors to create a confidential information memorandum (CIM) to attract potential bidders

Seller chooses a prefered bidder to proceed with

2 terms of an NDA

Prevent parties from disclosing any negotiations

Only using confidential information to evaluate the deal

What does a Letter of Intent (LOI) include 1 + 1

Includes non binding basic prices and terms

May also include a binding agreement for the seller to not carry on sale discussions with other parties

4 important terms in an offer

Money terms

Certainty of deal

Employee Retention

Duration of transition post-sale

Due diligence (what happens, and why)

Buyer gets legal access to records and facilities

Buyer will want to know about any potential liabilities

Explain leveraged buyout (LBO)

You borrow money from the bank, and use business assets to help cover it

Explain Seller financing

The seller loans buyer some money, and buyer pays them back over time

What is a Purchase Agreement

Detailed terms and conditions of sale that are binding

What happens during signing

The share purchase/asset purchase agreement is executed

What does an interem period include

Includes positive/negative covenants, and specified time to satisfy closing conditions

Post-Acquisition Integration process (2)

Notify suppliers, employees, and customers

Focus on the process of merging the 2 companies (PAI or PMI)