A Detailed Guide to Reviewing Merger and Acquisition Agreements (2025)
Mergers and acquisitions (M&A) are among the most significant and complex business transactions that companies can undertake. Whether you're a buyer, seller, or advisor, to review Mergers and Acquisition (M&A) agreements is critical to ensure that all terms, conditions, and potential risks are clearly understood and appropriately addressed.
A well-crafted M&A agreement outlines the transaction's structure, rights, obligations, and protections for both parties, making it essential to thoroughly evaluate and negotiate these documents.
This comprehensive guide will walk you through the key elements of M&A agreements, standard clauses, and tips for how to review Mergers and Acquisition (M&A) agreements, helping you navigate these intricate deals with confidence and clarity.
Understanding Mergers vs. Acquisitions
When companies combine their operations, the transaction can be classified as a merger or an acquisition. Although these terms are often used interchangeably, they have distinct meanings depending on the nature of the deal and how it is communicated.
What is an Acquisition?
An acquisition occurs when one company takes over another and becomes its new owner. Key characteristics of acquisitions include:
What is a Merger?
A merger happens when two companies combine to form a single new entity. Characteristics of mergers include:
Key Differences Between Mergers and Acquisitions
The classification of a deal as a merger or an acquisition depends on:
Types of Mergers and Acquisitions
Mergers and acquisitions can take on various forms, each with unique characteristics, advantages, and challenges. Understanding the distinctions is crucial for selecting the right approach based on business goals.
Horizontal Merger
Occurs when two companies operating in the same market and selling similar products or services merge to dominate market share.
Advantages:
Challenges:
Example: Disney and Pixar
Vertical Merger
A merger between companies in the same industry but operating at different stages of production (e.g., retailer merging with wholesaler).
Advantages:
Challenges:
Example: Amazon acquiring Whole Foods.
Congeneric (Concentric) Merger
Involves companies with different products or services but operating in the same market and targeting the same customers.
Advantages:
Challenges:
Example: Exxon merging with Mobil.
Conglomerate Merger
A merger between two companies in unrelated industries.
Types:
Advantages:
Challenges:
Example: Mars (chocolate) merging with Wrigley (chewing gum).
Market-Extension and Product-Extension Mergers
Statutory Merger
A merger is governed by state laws, in which one company retains its legal entity and the other ceases to exist. The boards adopt the merger plan, which is approved by the owners of the absorbed entity.
Triangular Merger
Involves three entities: the acquiring company (ParentCo), the target company, and a subsidiary of the acquiring company.
Process:
Advantages: Limits ParentCo’s exposure to the target’s liabilities.
Statutory Share or Interest Exchange
This process, provided by some U.S. state laws, allows the target company to become a subsidiary without forming a shell company.
Advantages: Streamlined process compared to triangular mergers.
Consolidation
Two or more business entities combine to form a brand-new entity.
Advantages:
Example: Daimler-Chrysler merger in 1998.
Share or Interest Acquisition
Involves purchasing shares from the target company’s owners, giving the acquirer total control.
Advantages:
Asset Purchase
The acquiring company buys specific assets of the target company rather than its shares.
Key Differences from Share Acquisition:
What is involved in the M&A deal process?
Preparing for and executing a mergers and acquisitions (M&A) deal is intensive and involves multiple stages. Here’s a breakdown of the key steps and considerations:
Preliminary Evaluation
Due Diligence
A thorough review of the target company’s material information to assess its health and financial viability.
Areas of focus include:
Data Room and Q&A Process:
Security Considerations:
Sell-Side Preparations
For companies looking to sell, preparation involves:
The five stages of an M&A transaction
An M&A transaction, whether involving the acquisition of shares or the business of a target entity, typically follows a structured process. However, this process is flexible and may vary based on the transaction's complexity.
It's crucial to review Mergers and Acquisition (M&A) agreements carefully at each stage to ensure that all aspects of the deal are clearly defined and aligned with the strategic goals of the involved parties.
Assessment and Preliminary Review
The M&A process often begins with the vendor preparing an Information Memorandum. This document is designed to gauge market interest and maximize the value of the company, group of companies, or business being sold.
It provides potential purchasers with enough detail to decide whether to pursue the acquisition while avoiding the disclosure of confidential or sensitive information.
If a purchaser expresses interest in the target, they typically proceed by signing a Non-Disclosure Agreement (NDA).
This agreement protects the confidentiality of the target company's sensitive data and ensures secure discussions about the potential acquisition.
Negotiation and Letter of Intent
In cases where multiple potential purchasers are involved, this phase is typically preceded by the due diligence process.
However, if only one purchaser is in contention, negotiations and preparatory discussions often begin before or alongside due diligence. These discussions usually address key considerations such as:
Evaluating whether the transaction requires pre-clearance from competition authorities.
Understanding the impact on employees and compliance with employment regulations.
Assessing whether any licenses need to be transferred or obtained.
Reviewing tax and financial consequences of the deal.
During this phase, the parties often draft a Letter of Intent (LOI) to outline the proposed terms and conditions of the acquisition. While this document helps establish mutual understanding, it is typically non-binding or only partially binding.
Due diligence
At this stage, a due diligence exercise is conducted to assess the target company or business. If there is one potential purchaser, the due diligence is typically carried out by advisors engaged by the purchaser, referred to as buyer due diligence.
Alternatively, the vendor may also conduct due diligence to facilitate the sale by addressing potential issues, identifying risks that could affect negotiations or pricing, and preparing appropriate warranties for the purchaser.
The due diligence process generally covers legal, fiscal, and financial aspects to uncover key risks, determine fair pricing, and strengthen bargaining power. It may involve examining corporate matters, contracts, employment, data protection, intellectual property, insurance, and regulatory compliance from a legal standpoint.
Negotiations and Closing
After completing the due diligence exercise, the prospective purchaser and their advisors evaluate the findings and their impact on the transaction. If the purchaser decides to proceed, the parties enter into negotiations to finalize the terms and conditions of the deal.
These discussions often include determining the final sale price or agreeing on a pricing mechanism and addressing the scope of warranties, indemnities, and any limitations.
The agreed terms are then formalized in either a Share Purchase Agreement (SPA) or an Assets Purchase Agreement (APA), depending on whether the transaction involves acquiring shares or the business itself.
Post-Closure Integration/Implementation
The Share Purchase Agreement (SPA) or Asset Purchase Agreement (APA) often includes post-closing clauses that outline further obligations, such as finalizing the transfer of additional assets, obtaining consents, issuing notifications, adjusting the price, or entering ancillary contracts.
In addition to fulfilling these obligations, the parties may undertake a post-closing integration process to combine the two companies or businesses effectively. The goal of this integration is to maximize synergies and ensure the long-term success of the deal.
Conclusion
Mergers and acquisitions (M&A) are complex processes that involve multiple stages, including preliminary evaluation, due diligence, negotiations, and post-closing integration.
Whether it's a merger or an acquisition, understanding the specific characteristics of each transaction and the stages involved is crucial for buyers and sellers to navigate the process effectively. It's essential to review Mergers and Acquisition (M&A) agreements at each step to ensure that all terms are appropriately evaluated and aligned with the strategic objectives.
With thorough preparation, due diligence, and strategic planning, M&A can lead to successful outcomes, driving growth, efficiency, and market expansion for the involved companies.
A merger occurs when two companies combine to form a single entity, often with equal participation. An acquisition involves one company taking control of another through a friendly or hostile process.
Due diligence is the process of thoroughly investigating a target company’s financial, commercial, and operational aspects to identify risks and opportunities and ensure the transaction is financially viable.
A Letter of Intent (LOI) is a non-binding document that outlines the preliminary terms and conditions of an M&A transaction. It helps both parties understand each other’s intentions before proceeding.
After closing, the parties often focus on post-closure integration, ensuring that assets are transferred, consents are obtained, and the two companies or businesses are effectively combined to maximize synergies and ensure long-term success.
Shawn Parikh is the CEO and Co-Founder of MYCPE ONE. A Chartered Accountant by qualification, he has over 15 years of experience of being a problem solver for small to mid-size firms and over time he has given consultation to thousands of CPAs, accountants and tax pros. Shawn has always been a big believer and advocate of social enterprises and small accounting firms & businesses. He consults and speaks on several topics ranging from Building Remote Team - Remote Working, Offshore Staffing, strategic planning, Scalability of Accounting Practice, cloud accounting, practice management, LinkedIn marketing, etc.
Shawn Parikh
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Shawn Parikh
