Though it was announced in December 2017 that Disney acquired 20th Century Fox in a massive $52.4 billion deal, it’s still too soon to know what that means for properties such as The X-Men or The Simpsons because the deal itself must first go through a regulatory review to make sure the sale is legal and doesn’t violate any antitrust or communication laws, a process that may take up to eighteen months to complete.
This type of regulatory process is normal for the majority of large-end corporations. But what about smaller businesses who want to sell, merge or acquire a business? For these types of companies, mergers and acquisitions (M&A) are generally regulated by Federal and State laws, so it can be a much easier and straightforward affair. However, there are still many things a business owner should be mindful of when looking to merge with or acquire another business.
The difference between a merger and an acquisition is small but important. A merger, also known as a consolidation, is when two companies combine their assets into one new company, wherein both old companies cease to exist. An acquisition is when one company purchases another company’s assets as their own.
Mergers and acquisitions aren’t cheap. M&A takes a lot of time and patience, and could come with a myriad of unexpected problems. Before beginning the process, understand the reason for merging. Is it to expand the company? Improve revenue growth? Acquire a patent? Knowing what you want and how to get it will allow for a smoother transition once the merger is finalized.
There’s a lot of paperwork that must go into an M&A. Possible forms and documents include Non-Disclosure Agreements, Confidential Information Memorandums, Letters of Intent, Exclusivity Agreements, HSR Filings, Third Party Consents, Bills of Sale, SEC Filings, and Transition Services Agreements, among others. Due diligence is required to make sure that not only are federal and state laws being followed, but that the correct paperwork is being filed at the correct times.
Not all company cultures blend well. Employees may revolt if company policies are drastically changed overnight. Take the time to meet and build relationships with those who will be joining your team and review how each company operates to make sure the companies are a good fit. It’s also in a company’s best interest to have an exit strategy in place with terms that allow for the severing of the transaction should the process break down.
Above all else, seek legal advice from an attorney familiar with M&A transactions prior to negotiating or signing any documents, especially a Letter of Intent. Depending on how things are phrased, the language used in these documents can protect or harm the company. You never want to be stuck with a document that undermines your business or intellectual property, or undervalues your assets. Having a trustworthy lawyer at your side will guarantee everyone achieves their goals.