Private company mergers and acquisitions, or M&A, is an interesting business and legal area to understand especially for those who have intentions of either selling their companies, or merging with an existing one, or those who are interested in investment without having to start from scratch. It is important to understand the structure, people, and systems involved in M&A processes. You have to understand the different terminology and jargon that surround the implementation of private company merger and acquisition and the corresponding legal services necessary for the completion of the transaction.

Mergers and acquisitions are two different things. When a business becomes in charge of another business and has worked on establishing itself as its new owner, this refers to the process of acquisition. This means that the previous company has ended its legal existence and the new company takes over. On the other hand, a merger happens when two companies agree to start anew with a new company, instead of proceeding with any of the original businesses. The stocks in the two companies are surrendered and a new stock for the new company will be issued.

Technically, these are the processes involved in mergers and acquisitions. However, a purchase can be considered either as such depending on the level of “friendliness” between the parties. For unfriendly or hostile purchases, the agreement can be an acquisition. For a friendly agreement of two CEOs joining together as one, the process becomes a merger.

The first thing that you need to clearly understand is the different roles that come out during a private M&A process. Generally, these include the Seller, the Buyer, and the Adviser. The specific roles are presented below.

SELLER

This is basically the owner of the business, whether it is a single person or a corporation owned by several shareholders. Collectively, in a private M&A process, regardless of the number of shareholders, the entity is referred to as the seller.

THE BUYER

Financial buyers are people or companies who would have the interest to acquire, develop and sell businesses. The business model is like a buy, operate and sell that allows some profit through the cash flow while the company operates and with the gains when the company is sold. The financial strategy is to work on the company growth for higher exit value that can be attractive to future buyers.

Although there are more interests on companies that are already in the maturity level, there are also some that would invest on start up businesses because of the financial advantage of acquisition at lower cost than those at mature stage. There are also strategic buyers who wouldn’t have the intention of selling the business in the future but to develop and let the company grow as their own.

ADVISERS

These are people who provide the assistance in the completion of the Private Company M&A process. Business legal services that specialise in Private Company M&A are should be involved in the process for the preparation of the necessary documents in relation to the agreement. There are also instances when the legal service experts are available at the earliest stage of negotiation.

The reason for this is that the legal experts would have insight into market related conditions, in coordination with the financial advisers. The success of the M&A process is influenced by the abilities and expertise of the financial and legal advisers.

Private company merger and acquisition can be very complicated if processed without the necessary legal advice. It is best to seek the assistance of the experts to make the process run smoothly and completed without hassles. 

04 March 2012