If you own a business, you will eventually want to consider how to grow your market position or wind down and retire. Your strategy may include participation in a business combination with another company. This complicated process begins with a Letter of Intent and ends with a definitive agreement.
If you are thinking about significant changes for the future of your business, a Texas mergers and acquisitions lawyer at Sparks Law can explain the legal vehicles and documents used to meet your needs. Speak to an experienced attorney at our firm for the dedicated guidance you deserve.
Although corporations generally merge or acquire, other legal entities can engage in business combinations, including limited liability companies and partnerships. A sole proprietorship is treated as one with its owner, and any business combination would probably include chartering a company with Texas’s Secretary of State.
Mergers occur when two or more companies combine with shareholders from both companies acquiring shares in the combined company. Management of the new company is agreed upon between the parties during negotiations. Both companies usually seek a merger to better each company’s market share, cash flow, or product diversity. When considering a merger, it is crucial to work with a skilled Texas M&A lawyer.
An acquisition is when one company takes over another. Acquisitions can be negotiated and friendly, or they can be hostile. For instance, if a target company does not wish to be acquired, the acquiring party can buy its publicly traded stock until it owns a majority. However, in some cases, a company cannot survive unless it is acquired. An influx of cash can be a lifeline, with the company surviving as a subsidiary or standalone with new owners. A Texas lawyer could help structure a merger or acquisition to satisfy the needs of all parties.
Friendly mergers and acquisitions begin with informal talks between the two companies to see if there is genuine interest in a business deal. These initial talks usually occur between high-level management from both companies, although boards of directors usually authorize talks to begin.
Once interest is established, a lawyer (usually the acquirer’s attorney) drafts a Letter of Intent that does not bind the parties to complete the deal but places restrictions on how long the parties have to complete due diligence and agree to proceed. The parties are also restricted from courting other candidates and from sharing sensitive information about the negotiations. A local attorney should review or draft this critical document in the M&A toolkit.
Both parties want to know all they can about the other party. Generally, an attorney will supply a due diligence checklist, and the tasks will be assigned to different officers. For instance, the Chief Financial Officer usually reviews the balance sheets of the other company. Lawyers, accountants, and tax advisors are involved in scrutinizing the books and records of the companies. During the due diligence stage, it is important to review every aspect of both companies.
Once the parties complete due diligence and signal they wish to proceed, business lawyers from both sides will work together to draft the contract as a merger, share purchase, or asset purchase agreement. Some information included in these agreements include:
A Texas attorney skilled at drafting M&A agreements could help the companies memorialize their specific negotiations.
Merger and acquisition contracts are not one size fits all. If you are considering a business combination with another company, you need to properly discuss your goals and put them into writing.
A Texas mergers and acquisitions lawyer should be part of your team from the exploration stage to the closing day. Call Sparks Law today to schedule your initial consultation.