Engaging experienced legal professionals and a team of advisors with expertise in mergers and acquisitions can help navigate the legal and financial complexities of taking on a new business.
SoGlos chats to WSP Solicitors associate solicitor, Shelley Bonney, on how to best mitigate potential risks throughout the process.
About the expert — Shelley Bonney, associate solicitor
Shelley Bonney qualified as a solicitor in 2008 and has more than 10 years of experience in commercial law. She specialises in buying and selling businesses and has helped hundreds of companies over her extensive career.
Originally from Cornwall, Bonney prides herself on being approachable and providing clear and practical legal advice.
How can WSP help with mergers and acquisitions?
WSP has a wealth of experience and dealing with transactions is the main focus of our work in the corporate commercial department.
We act for a variety of clients from all over the country who operate businesses in a wide variety of sectors, including but not limited to leisure, engineering, care, retail and manufacturing.
We have acted on transactions ranging in value from £50,000 to tens of millions and everything in between.
WSP can assist from initial steps through to drafting and negotiating key documents to dealing with completion and post completion issues.
The majority of acquisitions usually involve a property aspect, whether that be freehold or leasehold. We therefore work closely with our commercial property team on mergers and acquisitions transactions to ensure the corporate aspects of a transaction dovetail with the commercial property elements.
What are some of the more unusual sectors of M&As that you’ve handled with a great outcome?
The ones that really stand out include the acquisition of a treasure hunting company, a fishing lake business and a bridal retail company.
Why is getting the right legal advice so crucial for M&As?
Mergers and acquisitions are complex transactions. These transactions can have significant legal implications, requiring careful consideration of various legal aspects throughout the process. It is therefore vital to take legal advice at the earliest opportunity.
Getting the right advice from specialist lawyers can help save time, stress and costs, and save firms falling into the common pitfalls.
On average how much time should a company allow for the legal process of M&A to go through?
The timescale for the process varies hugely from transaction to transaction. This can depend on what assets are being acquired, whether the transaction is share or asset purchase, and whether or not third parties are involved such as lenders, landlords and their solicitors and investors etc.
As a rough guide, for a straightforward transaction, you should allow between eight to 16 weeks. Preparation is key and a clear agreement between the parties from the outset. This saves times, helps to prevent delays and wasted costs.
What are some of the emerging trends you’re seeing in the M&A landscape?
We are seeing more and more transactions that involve an element of deferred consideration. This is often tricky to deal with to help reduce the risk of post completion disputes and to deal with any required security for the deferred element.
What should businesses consider before embarking on a merger or an acquisition?
Some of the key legal considerations and processes involved in mergers and acquisitions include:
Determining the structure of the transaction at the outset is an important legal consideration. M&A transactions can take various forms, including mergers, acquisitions, share purchases, asset purchases or joint ventures. Each structure has its own legal implications, such as tax consequences, regulatory requirements and shareholder approvals.
The chosen structure should align with the strategic goals of the parties involved while minimising legal and financial risks. In our experience, taking early legal advice as to structure is essential.
Heads of Terms (HoTs)
Once a structure is agreed HoTs are a useful tool in negotiations, as they provide a launch pad to move a deal forward by removing the risk of the parties involved having a different understanding of the main points of the deal. The crucial terms of a transaction need to be established at an early stage to set a timetable for smooth delivery of the final agreement.
Typically, the HoTs will record the purchase price, any mechanism to adjust the price, when the price is to be paid (including any deferred element), details of what is being bought or sold, planned timescales for delivery and the conditions to be satisfied for the transaction to proceed, and confidentiality and exclusivity undertakings.
One of the crucial steps in the M&A process is conducting thorough due diligence. This involves a comprehensive review and analysis of the target company's legal, financial and operational aspects.
Legal due diligence aims to identify any potential risks, liabilities or legal issues that may impact the transaction or the post-completion integration. It typically covers areas such as contracts, property, intellectual property, litigation, regulatory compliance and employment matters.
Depending on the industry, mergers and acquisitions may require obtaining regulatory approvals from government authorities. These approvals are necessary to ensure compliance with antitrust, competition and other applicable laws.
Failing to obtain the required regulatory approvals can result in legal consequences, including fines, penalties or even the nullification of the transaction.
Negotiating and drafting transaction documents
The M&A process involves negotiating and drafting various transaction documents, such as HoTs, confidentiality agreements or NDAs as they are also known, purchase agreements, disclosure letters and ancillary documents.
The purchase agreement is the most important of these documents which outlines the terms and conditions of the transaction, including the purchase price, representations and warranties, covenants, and post-completion obligations.
It is crucial to involve experienced legal professionals to ensure that all these documents accurately reflect the parties' intentions and protect their interests, and WSP can assist with this.
Mergers and acquisitions often impact on the employees of the target company. Legal aspects related to employees include employment laws, employee benefits, non-compete agreements and potential redundancies.
Compliance with applicable employment laws and managing employee expectations are critical to avoid legal disputes or negative consequences during the integration process.
After the transaction is completed, the legal aspects continue during the post-completion integration phase. This involves integrating the operations, systems, employees and cultures of the merged entities. Legal considerations include contract novation or assignment, intellectual property consolidation and regulatory compliance.
Are there any aspects of M&A that future clients should be aware of?
Mergers and acquisitions can often be complex transactions that require careful attention to various legal aspects.
In our experience, preparation and taking early legal advice is key. Conducting thorough due diligence, determining the transaction structure, obtaining regulatory approvals, negotiating and drafting transaction documents, considering employee implications, and managing the post-completion integration process are all crucial steps in ensuring a successful and legally compliant M&A transaction.
Engaging experienced legal professionals and a team of advisors with expertise in M&A can help navigate the legal and financial complexities and mitigate potential risks throughout the process.