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Business Law: Mergers & Acquisitions

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Mergers & Acquisitions

M&A lawyers focus on transactions that represent significant business changes, such as the merger of two companies, the acquisition or sale of a company’s significant assets, or the sale of the company itself. M&A transactions may occur between two public companies, between two private companies, or between a public company and a private company. M&A lawyers should therefore be familiar with the legal, business and financial issues facing both private and public companies.

M&A lawyers spend most of their time negotiating transactions and then preparing the deal-related documents, which can be very complex. So students looking at this practice will want to take one or more negotiation courses. M&A lawyers often work with publicly held companies so they need a good understanding of the securities laws and modern capital markets. An understanding of corporate income tax is also important for an [...]

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M&A lawyers focus on transactions that represent significant business changes, such as the merger of two companies, the acquisition or sale of a company’s significant assets, or the sale of the company itself. M&A transactions may occur between two public companies, between two private companies, or between a public company and a private company. M&A lawyers should therefore be familiar with the legal, business and financial issues facing both private and public companies.

M&A lawyers spend most of their time negotiating transactions and then preparing the deal-related documents, which can be very complex. So students looking at this practice will want to take one or more negotiation courses. M&A lawyers often work with publicly held companies so they need a good understanding of the securities laws and modern capital markets. An understanding of corporate income tax is also important for an M&A lawyer, since M&A transactions are typically structured with sensitivity to tax consequences, both to the entities and to their stockholders. Other important legal issues that are often confronted in a typical M&A deal are antitrust, employee benefits, intellectual property and environmental law. M&A lawyers at larger firms often work closely with their colleagues who specialize in these areas.

On the litigation side, some litigators may choose to specialize in disputes arising out of complex M&A transactions. Typical types of disputes that arise out of M&A transactions include shareowner claims against the target’s board of directors for a breach of duty in approving the sale of a company, a demand for appraisal rights, or the calculation of breakup fees in a failed deal.

The process for a transaction generally starts with due diligence. At its core, due diligence involves assembling all the information relevant for a client to make a decision on the appropriate valuation of a transaction. Accordingly, extensive amounts of data are assembled regarding a prospective target company. The company's assets, business prospects, liabilities, contingencies such as litigation and governmental claims, employee benefits and tax liabilities are only a small sampling of the types of data assembled during the due diligence process. Concurrently, comparable information is developed by business personnel and investment bankers regarding the products, operations, finances and prospects of the target.

Once clients start analyzing the information acquired during the due diligence process, they will begin to formulate an idea of whether a transaction is feasible and, if so, on what terms it can be undertaken that achieves the client's goals. Accordingly, during this phase of the transaction, some of the matters that arose during the due diligence process will be researched or investigated. For example, various members of a team of business personnel, bankers and lawyers will consider the implications of matters that could affect the probability of a successful transaction as well as the value of the transaction. Some of these issues may include tax, antitrust, financing and financial reporting for the deal, and employee benefits, including matters related to executive compensation or compliance with ERISA. The law firm may prepare memoranda addressing these subjects as well as term sheets and financial models that outline the possible terms of a transaction. Also during this period, the law firm will assist in preparing materials to inform the client's board of directors as to the details of a transaction so that the board can ultimately make an informed decision on whether to undertake the transaction.

As the transaction progresses, the buyer and seller commence more detailed discussions on the terms of the transaction. At an appropriate time, one of the law firms (often the buyer’s firm) will prepare drafts of the detailed agreements that will serve as the basis of the transaction. These draft agreements will receive detailed review by both the client and the law firm and will be the subject of extensive negotiation. An M&A lawyer, working alongside the client, serves as a deal architect. The lawyer reaches out to experts in more specialized practice areas (e.g., tax, energy regulatory, or ERISA), and ensures that the input of all such experts is adequately reflected in negotiations and deal documentation. An M&A lawyer at a large firm may also request input from local counsel (i.e., lawyers from the jurisdiction in which one or more parties or assets are located).

If the parties successfully negotiate the operative documents, the transaction is announced to the public and the lawyers focus on preparing for the actual consummation of the transaction (the closing). Between the signing of the documents and the closing, both sides to the transaction will obtain any required governmental approvals, consents of third parties, finalize any needed financing and negotiate any remaining documents that will be necessary at the closing. At the closing, the seller will convey title to the property, shares or whatever form of property was agreed to be sold and the buyer will pay for the property with the agreed upon purchase.

The process for completing an M&A transaction (whether friendly or hostile) is similar in many respects to the types of transactions that corporate and securities attorneys handle. For example, in a public securities issuance (either debt or equity securities issued in a public offering), the process of doing due diligence and drafting documents, and the process for consummating the transaction, is quite similar to the process for completing an M&A transaction. The securities lawyers may represent issuers or underwriters as opposed to a buyer or seller, and the nature of their roles may differ (particularly with regard to obligations imposed by the securities laws), but the process for completing the corporate transaction is similar. In fact, where the work includes a broad range of transactions involving corporate entities, the practice may sometimes be called a “corporate transactions” practice.

Depending on the nature of his or her practice and client base, a corporate transactions attorney could be doing any of the following:

-forming a limited liability company for a client who wishes to invest in real estate;

-drafting a redemption agreement for a client seeking to buy out a shareholder or partner;

- negotiating a note and warrant purchase agreement for a technology client looking for investors;

-revising an agreement between a distributor client and one of its sub-distributors or manufacturer suppliers; or

-drafting an opinion letter required by a lender as a condition to closing a loan to his or her client (or required by an investor making an investment in the client’s company).

If you are certain that want to do corporate transactions work, take as many business-related courses as you can. A good knowledge of accounting and at least a working knowledge of financial statements is also very useful.

Most M&A lawyers work in private practice at mid-size to large law firms. Many larger companies, however, often have “in-house” M&A counsel, who advise the company’s management on M&A issues and manage outside counsel in their various transactions. Some opportunities exist in the public sector, such as those with the Securities and Exchange Commission or the Department of Justice.

 
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