Orr Litchfield
Solicitors and Business Lawyers
Solicitors and Business Lawyers
‘Mergers and acquisitions’ (or ‘M&A’) is an umbrella term used to refer to a number of different types of transactions where companies or businesses combine all or some of their assets in one way or another.
Whilst the terms are often used interchangeably, ‘mergers’ and ‘acquisitions’ have different meanings and relate to different types of transactions.
Given their respective connotations (a ‘merger’ having a more friendly, consensus-oriented ring to it than an ‘acquisition’), transactions which are in fact ‘acquisitions’ are sometimes portrayed as ‘mergers’ for the purposes of internal and external communications (for example, with boards, employees, customers and suppliers) when proposing and negotiating the relevant transaction and after the transaction has been completed.
A merger is the formation of a new business by two or more existing businesses combining all or some of their resources in order to enhance their respective businesses, sharing the risks and rewards of doing so.
Typically, the parties to the merger will create a new company, which will then acquire the shares in each of the parties to the merger or the businesses of the entities participating in the merger in exchange for shares in the new combined company. Consequently, mergers require no cash payment in order to complete them.
There is no transfer of control of any of the businesses being merged to any person outside of the parties to the merger. The new combined company will be owned by the owners of the entities participating in the merger, although their respective shares of the new combined entity will be diluted.
Mergers are often perceived as taking place between parties of a similar size and strength. In practice, it is relatively uncommon to find friendly mergers of equals. It is more likely that the dominant party will acquire the smaller party even if the price paid to the owners of the smaller party is paid by way of issuing new shares in the dominant party.
An acquisition is the purchase of all or some of the shares in a company by one or more persons from all or some of the existing shareholders or the purchase of the whole or part of the business and/or assets of another person from the existing owners of the business and/or assets.
There are significant legal, financial, commercial and other differences between share acquisitions, acquisitions of businesses as a going concern and asset purchases. The choice of format will depend on a number of factors including the bargaining power of the parties involved.
Typically, the acquiring party is a larger entity which is acquiring the shares in a smaller company or its business, but that is not always the case (for example, larger entities may sell non-core group companies, businesses and assets to smaller specialist entities).
There are several different types of mergers and acquisitions including:
(a) Horizontal mergers and acquisitions;
(b) Vertical mergers and acquisitions;
(c) Congeneric mergers and acquisitions;
(d) Market extension mergers and acquisitions;
(e) Product extension mergers and acquisitions;
(f) Conglomerate mergers and acquisitions; and
(g) Reverse mergers and acquisitions.
The most common methods of making acquisitions are:
Where the target business is owned through a company structure, each of the shareholders will own shares in the company. The company will own the business and its assets. The shareholders of the company may be individuals and/or other companies (or other legal entities). A buyer may be able to buy some or all of the shares in the company from the existing shareholders.
The business and its assets will continue to be owned by the company whose shares are being purchased.
You can read more about selling shares in a company on our webpage on Share Purchases & Sales.
Where there is no company structure (for example, where the business is owned by a sole trader or partnership), a buyer may purchase the whole or part of a business as a going concern together with all or some of the assets of the business from the business owner(s).
Alternatively, where there is a company structure, a buyer may purchase the whole or part of a business (and all or some of the assets of the business) from the company rather than purchasing the shares of the shareholders in the company.
You can read more about selling a business as a going concern on our webpage on Business & Asset Purchases & Sales.
Rather than buying the business as a going concern, a buyer may purchase some or all of the assets of the business (for example, intellectual property) from the business owners rather than buying the business as a going concern.
You can read more about selling the assets of a business on our webpage on Business & Asset Purchases & Sales.
A Management buy-out (MBO) is a transaction which involves the whole or part of the existing management team (the ‘Management Team ’) buying out the business it manages from the existing owner (the ‘Seller’).
The target of an MBO is usually a private limited company (the ‘Target’).
The Management Team will usually seek to buy all of the shares in the Target from the Seller or to acquire the business and some or all of the assets of the Target from the Target company.
You can read more about MBOs on our webpage on management buy-outs (MBOs).
A Management buy-in (MBI) is a transaction which involves an external management team (the ‘Management Team ’) rather than internal management team buying the business from the existing owner (the ‘Seller’).
Typically, the Management Team seeks to acquire the business because it feels that the business is underperforming and, with a change in management and/or business strategy, it can improve the turnover, profit and value of the business.
The target of an MBI is usually a private limited company (the ‘Target’).
The Management Team will usually seek to buy all of the shares in the Target from the Seller or to acquire the business and some or all of the assets of the Target from the Target company.
You can read more about MBIs on our webpage on management buy-ins (MBIs).
Orr Litchfield’s corporate lawyers advise a range of clients including national and international listed, public and private companies, equity investors, management teams, businesses and entrepreneurs on a variety of corporate transactions. Our Mergers, Acquisitions and Sales service includes:
Share Purchases, Share Sales, Business Purchases, Business Sales, Management Buy-outs, Management Buy-ins, Mergers, De-mergers, Consolidations, Takeovers, Auctions of businesses and companies, Group reorganisations, Intra-group transfers, Pre-sale preparation, post-acquisition rationalisation, Members Voluntary liquidations and section 110 schemes of arrangement, Public to private takeovers and Transaction Due Diligence.
Our corporate lawyers are supported by Commercial, Competition, Employment, Intellectual Property, Commercial Property & Real Estate and Planning & Environmental legal experts, where required, to provide a full Mergers, Acquisitions and Sales service.
We work closely with pensions, tax and financial advisors to help our clients structure their corporate transactions in the most efficient and effective way.
We regularly work on international cross-border transactions. Where required, we are able to obtain support for our clients from our international network of lawyers.
You may also be interested in the following articles relating to mergers, acquisitions and sales of businesses or companies by Orr Litchfield Solicitors:
(a) Buying UK Companies - An Overview
(b) Preparing your business for sale - When should you sell your business?
(c) Preparing your business for sale - Business sale objectives and goals
(d) Preparing your business for sale - Fine-tuning your business to maximise price and minimise risk
(e) Preparing your business for sale - Are you ready for buyer due-diligence?
(f) What is your exit strategy?
(g) Buying a business from an Administrator - 15 legal issues to consider
(h) Preparing your business for sale - Who will buy your business?
