Mergers and Acquisitions
Owning a business comes with it’s fair share of responsibilities and expectations. Many owners choose to think about the future of their business in terms of mergers and acquisitions. Some might want to eventually sell their business, while others are hoping to buy other businesses to incorporate into their own. Still more are aiming to merge two or more companies together.
No matter what tactic you are aiming for, as a business owner, any intention towards mergers or acquisitions involves an informed understanding of the rules and regulations under company law in the United Kingdom.
The Differences Between Mergers and Acquisitions
These activities are regulated by the UK government in order to ensure that all parties involved, including shareholders, are treated fairly. It also aims to encourage market competition with the outcome, as opposed to resulting in one company acquiring market dominance.
An acquisition is defined by one company buying and absorbing a second. It usually occurs when a larger company wishes to broaden their operation base into a new field. These companies often choose to acquire a smaller company who is already proficient in this field.
Acquisitions require a strict regulations set forth by company law in the UK. These regulations concern themselves with fairy treatment of shareholders and what information should be released. For example, a bidder is required to make their intentions public before the purchase. Because a successful business is often reliant on a group of people, rather than a single individual, these laws protect those groups so they receive their dues.
Types of Acquisitions
● Share Purchase: This case describes when the buyer acquires a company through buying up its shares. It results in the buyer receiving all the purchased company’s assets, right, obligations, and liabilities.
● Asset Purchase: This involves just purchasing specific assets the company offers, allowing the buyer to pick and choose what they want to acquire, without committing to certain unwanted liabilities or unnecessary assets.
Mergers, on the other hand, occur when two companies work together and form an entirely new company. When this occurs, a major concern for both employees and stockholders includes the fair treatment of every stakeholder involved in the process and outcome.
Advantages a Merger Can Offer
● A merger often offers the chance for a business to cross sell, or broaden their operations to include complementary services or products.
● Many mergers diversify a company’s operations, either geographically or through services and products.
● When a company purchases a competitor, they often increase their market share while also increasing their revenue. This choice requires compliance with merger laws.
● A merger can reduce duplication either in operations or departments, which will economise the business.
Legal Discussion & Terms
When engaging in either a merger or acquisition, there are certain legal issues that must be considered. These issues can occur in any stage, and require careful concern, lest they result in harmful ramifications to your business.
Due Diligence Stage
Once a business is either purchased or merged, the subsequent liabilities that were associated with the previous business must be addressed, usually be the directors of the company. This is in tandem with verifying any and all claims made by the sellers. At this stage, your best choice is to seek a lawyer to guide you through the process without suffering harmful and unnecessary consequences.
Due diligence includes gathering details for all involved legal cases as well as obtaining all proof of ownership over assets. Also, be sure to inquire after all contracted employees, especially those with future contractual obligations.
During negotiations, it is essential to obtain commitments from the vendors that assure you and build confidence in the deal you are making. These commitments and assurances should be delivered in writing, a document also known as the warranty. A warranty is often required by the creditors, employees, legal claims, and other aspects of the business.
The U.K passed The Companies Cross-Border Mergers Regulations in 2007, which concerns itself with all mergers between companies based in the UK and any companies based overseas. These new regulations have reduced many barriers, and improved feasibility for any mergers to occur between foreign and UK companies, as long as the foreign companies are within the European Economic area.
No matter what direction you take with mergers and acquisitions, it is recommended to seek legal council during the process to ensure you are fully informed of potential legal issues.