The term “mergers and acquisitions” (M&A) in international course of business usually means transactions that result in the transfer of property, possession, or rights of control in relation to business from one person to another on the basis of contract.
It should be noted that the term “mergers and acquisitions” is purely economic despite the apparent similarity with the types of reorganization provided for by civil law.
In practice there are many types of contracts (structures) that can formalize such transactions – for example, a contract for the sale of shares, an exchange agreement, etc. The main agreement that formalizes acquisition of business is a contract for the sale of shares/interests.
As usual, M&A deal are carried out within 5 to 8 months and following stages shall be complied with from the moment of transaction planning till the final settlement:
1. Preparation for M&A deal which includes the following actions:
- decision on the strategic feasibility of transaction;
- identification of strategic alternatives to the proposed transaction;
- analysis of potential investors;
- selection and signing of agreement with consultant.
2. Conclusion of agreement of intent, in which the parties set out the main terms of upcoming transaction.
3. Legal and financial due diligence for the purpose of checking the acquired business and identifying main risks.
4. Transaction structuring, during which, upon completion of comprehensive Due Diligence, a more detailed discussion of price and details of legal registration of the transaction structure between the parties begins.
The order of mutual settlements under the transaction, duration and features of transition period, as well as responsibility of each party during transition stage are clearly stipulated.
5. Closing stage of transaction. After the parties have reached understandings on all issues and aspects of upcoming M&A deal, the stage of direct fixing of these understandings in the contract and obtaining the appropriate permission from state authority begins.
After the agreement has been signed financial calculations are made, rights to assets are re-registered, and commission fees are paid to intermediaries.
6. The final stage results in determination of personnel structure of new or reorganized company and dismissal/recruitment of new management.
M&A deal is very extensive procedure, the key to successful implementation of which is careful preparation and professional execution of each stage of M&A deal. Otherwise, a company that wants to carry out merger or acquisition bears the risk of negative consequences, which may result in a decrease of production volumes, profitability, and loss of profit.