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:

• Ownership Change: The acquiring company assumes control of the target company. 
• Hostile Takeovers: In some cases, acquisitions are hostile, where the target company resists the purchase. 
• Willing Participation: Acquisitions can also be friendly, with the agreement and cooperation of both companies. 

What is a Merger?

A merger happens when two companies combine to form a single new entity. Characteristics of mergers include:

• Equal Partnership: Typically, both companies are of similar size and stature. 
• Unified Operations: The two firms cease to exist as separate entities and move forward as one organization. 
• Merger of Equals: This term is often used when both companies equally contribute to the new entity.

Key Differences Between Mergers and Acquisitions 

The classification of a deal as a merger or an acquisition depends on: 

• Nature of the Deal: Whether the transaction is friendly or hostile. 
• Communication: How the deal is presented to the target company’s board, employees, and shareholders. 

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: 

• Builds economies of scale. 
• Reduces market competition. 

Challenges: 

• Increased regulatory scrutiny. 
• Risk of value loss if integration is not executed well. 

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:

• Increased regulatory scrutiny. 
• Streamlines operations. 
• Boosts efficiency and cuts supply chain costs. 

Challenges:  

• Reduced flexibility. 
• Added complexities in business management. 

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:  

• Expands product lines. 
• Increases market share. 

Challenges: 

• Limited diversification opportunities. 

Example: Exxon merging with Mobil. 

Conglomerate Merger

A merger between two companies in unrelated industries. 

Types: 

• Pure Conglomerate: Companies operate separately in their respective markets. 
• Mixed Conglomerate: Companies seek to expand product or market reach. 

Advantages:  

• Increases market share. 
• Diversifies business operations. 

Challenges:  

• Cultural clashes. 
• Disrupted efficiency due to integration challenges. 

Example: Mars (chocolate) merging with Wrigley (chewing gum). 

Market-Extension and Product-Extension Mergers 

• Market-Extension Merger: Companies in the same industry merge to expand into new geographic markets. 
• Product-Extension Merger: A company adds new products to its existing product line by acquiring another company. 

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: 

• Target company merges with the acquiring company’s subsidiary. 
• Target becomes a wholly owned subsidiary of ParentCo. 

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: 

• Enhances efficiency. 
• Improves bottom-line performance. 

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:  

• There are no statutory requirements.

Asset Purchase 

The acquiring company buys specific assets of the target company rather than its shares. 

Key Differences from Share Acquisition:  

• Target does not become a subsidiary. 
• Payment is made to the business itself, not its shareholders. 

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 

• Market and Business Assessment: 
• Identify and evaluate potential target companies.
• Conduct high-level discussions between buyers and sellers to explore: 
• Strategic fit between the companies. 
• Alignment of company values. 
• Potential synergies that could be realized. 

Due Diligence 

A thorough review of the target company’s material information to assess its health and financial viability. 

Areas of focus include: 

• Financial: Analyze balance sheets, income statements, cash flow, and projections. 
• Commercial: Evaluate market position, customer base, and competitive advantages. 
• Operational: Review internal processes, supply chains, and infrastructure. 

Data Room and Q&A Process:  

• Utilize secure data room software for sharing critical documents. 
• Engage in an intensive question-and-answer period to identify risks, gaps, and opportunities. 

Security Considerations:  

• Ensure confidentiality to prevent disclosure risks leading to failure or reputational damage. 

Sell-Side Preparations 

For companies looking to sell, preparation involves: 

• Organizing financial, operational, and legal documentation. 
• Ensuring the business is positioned attractively for potential buyers. 

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: 

• Competition/Antitrust Law: 

Evaluating whether the transaction requires pre-clearance from competition authorities.  

• Employment Law: 

Understanding the impact on employees and compliance with employment regulations. 

• Licensing Requirements: 

Assessing whether any licenses need to be transferred or obtained.  

• Fiscal Implications: 

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. 

Shawn Parikh

Co-Founder & CEO

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.