A successful M&A transaction of a privately-held business requires that the expectations of the acquiring or surviving company (the “Acquirer”) and the selling or merging company (the “Target”) be met. The Acquirer needs to receive a truly valuable company — a company that is what it represents itself to be. The Target company needs to receive the valuable consideration (whether cash, stock or other consideration) that its owners have been promised. A good lawyer will help each party to the M&A transaction set reasonable expectations and effectuate a successful concluding transaction.

While M&A transactions can be complex, the process consists of essentially three (3) parts outlined as follows:

1. The Initial Negotiation. The initial negotiation normally requires that the parties agree upon the basic parameters of the negotiation process and the deal itself. This initial negotiation normally results in a number of deliverables as follows:

  • NDA or Confidentiality Agreement
  • Pre-negotiation Agreements
  • Term Sheets or Letter of Intent

2. The Due Diligence Review. The purpose of the due diligence review is to insure that each party understands the assets and liabilities of the Target company. The Acquirer will especially want to flush-out hidden liabilities to prevent costly surprises after the merger/acquisition is concluded. The Target company will want to make sure that the Acquirer conducts a comprehensive and meaningful due diligence review so that the Acquirer does not later claim that it was surprised by an undisclosed liability. The due diligence process normally focuses on the following:

  • Corporate Records, Corporate Governance & Shareholder Agreements
  • Intellectual Property Ownership Records and Licensing Agreements
  • Employee Agreements, Procedures & Policies
  • Sales and Marketing Agreements
  • Vendor Agreements and Purchasing Commitments
  • All Other Commercial Agreements
  • Real Property Ownership Records and/or Leases
  • Litigation or Potential Litigation Related Documentation
  • Financial Documentation and Tax Returns

Proper preparation, organization and retention of these legal records is essential for a successful M&A transaction. Often the M&A transaction is under a meaningful time deadline. Unfortunately, some business owners try to cut costs by not seeking timely legal advice well before the M&A transaction, or seek to perform their own legal work using self-help manuals, computer software programs, or Internet based legal form filing services that look like lawyer-based services that are not so. Sometimes mistakes can be fixed; however, even when it may be possible to fix errors in legal documentation, the delays created by faulty legal documentation or poor organization of legal records can ruin an otherwise good deal between two parties. Early planning and consultation with legal counsel in the building of a business can determine whether the Target company owners realize the true value of their business which they have worked very hard to build.

3. The Closing

During the due diligence period, legal counsel normally work on preparing the final contracts and documentation to close the M&A transaction. Such closing contracts and related documentation normally include the following:

  • Board and Shareholder Approval by the Target Company
  • Board Approval and sometimes Shareholder Approval of the Acquirer
  • Modification and/or Cancellation of Shareholder Agreements of the Target Company
  • Representations and Warranties by the Target Company
  • Opinion Letters of Legal Counsel and Certified Public Accountants
  • Employment Agreements with Executives joining the Acquirer from the Target Company
  • Final Contracts
  • Consideration (Checks for Payment, Stock Certificates or other Consideration)

    • A detailed term sheet and a comprehensive due diligence process helps insure that final terms and documentation are memorialized and signed.

    Attorney Jeff Wooten represents both purchasers and sellers in all three stages of M&A transactions of privately-held businesses. Clients can expect Attorney Wooten’s support in each of the three stages of a M&A transaction and his dedication in working toward a successful conclusion that meets the expectations of all concerned.