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Regulatory and Legal Aspects of Mergers and Acquisitions

Recent census data shows that there are around 32.6 million businesses across the United States. There is a high likelihood that you will need to navigate mergers and acquisitions law as yours grows and evolves.

Here, we’re going to give you a basic guide to mergers and acquisitions. Read on to learn the critical regulatory and legal aspects that you need to understand.

The Basics and Legal Aspects of Mergers and Acquisitions

Mergers and acquisitions (M&A) law refers to the legal consolidation of two or more companies or assets.

‘Merger’ and ‘acquisition’ are often used interchangeably, but they are slightly different.

In a merger, two companies or firms combine with one another. They become a completely new legal entity while the two smaller ones cease to exist. The new entity gets a new corporate name and image.

In an acquisition, a company buys another outright. The purchased entity is absorbed into the buyer’s company and no longer exists. However, the buyer continues to exist as a larger and more powerful entity because it has taken the other company as part of itself.

As you might imagine, this comes with a lot of legal issues.

How Mergers Work

There are several different types of mergers, including:

  • Vertical mergers, where a company merges with its goods supplier
  • Horizontal mergers, where two directly competing companies merge and share the same markets/product lines
  • Congenic mergers, where two businesses merge because they serve the same target market in different ways (e.g. someone who exclusively sells phones and someone who exclusively sells phone accessories)
  • Conglomeration, where two businesses that have no common ground merge anyway

Many mergers happen when a company purchases another willingly. Others happen when a large new company purchases both entities to unite them. These are called ‘consolidation mergers.’

The Basics of Acquisitions

Acquisitions have a lot of legal issues surrounding them because of how they’re financed. Companies can buy other entities with:

  • Cash/financial assets
  • Assumption of debt
  • Stocks

Sometimes, a combination of the three will work.

In other cases, there will be ‘reverse mergers.’ A private company allows itself to be purchased by a public company that provides no goods or services whatsoever. The only impact is that the private company becomes publicly listed and merges into a new entity with tradable shares.

Who Regulates the Legal Aspects of Mergers and Acquisitions?

M&A law can be complicated, so it should come as no secret that there are multiple regulatory bodies that oversee them. The federal government is the first, while the state government is the second. It’s a dual jurisdiction.

Responsibilities of the federal government include:

  • Identifying and mitigating risks from investments
  • Regulating transfers of securities
  • Policing competition matters

The state government must:

  • Deal with acquisitions completed by merging
  • Regulate company internal affairs (such as the target company’s fiduciary duties)
  • Impose state anti-takeover statutes when necessary

Different states will have somewhat different regulations for M&As. It’s critical that you research your state’s guidelines.

You also must talk to a legal professional to determine the best course of action for your M&A. Attorneys understand the ins and outs of M&A law in your specific area and can help you figure out how to protect your business and assets.

Company-to-Company Considerations

All companies registered under the Exchange Act need to comply with US tender offer rules. These rules have detailed disclosure requirements. They also have many procedural requirements, such as:

  • Timing requirements
  • Offer extension requirements
  • Withdrawal of rights for target company shareholders

If your company is not registered under the exchange act, you do not need to comply with the tender offer rules. This is also true if US security holders have 10% or less of the offer’s class of securities.

However, the bidder does need to apply for securities with the Exchange Act if they do not have an exception. The rules governing M&A transactions will be on a state-by-state basis.

The Legal Aspects Mergers and Acquisitions

Since M&A is a broad legal area that varies between states and companies, hiring a corporate lawyer is essential when dealing with mergers.

Business and commercial lawyers will sit down with representatives of all companies involved in the M&A process. These experts can clarify how the company wants the M&A process to look, what type of merger might be conducted, or specific financing methods for acquisitions. This can get all involved parties prepared for the merger or acquisition, so no one is blindsided.

Figuring out the necessary paperwork and filling it out in an ironclad way can also be challenging for companies. However, business lawyers are trained in what M&As necessitate. 

They won’t just tell you what you need to file and how you need to file it. They will fill out the documents in a tight and ironclad way. This means that there’s no room for either party to contest the documents later.

It also means that all companies involved will get a fair say in what happens to shares, money, and investments. When everyone is on the same page, the M&A process is much smoother.

Talk With an Experienced Attorney

Now that you know the legal aspects of mergers and acquisitions, it’s time to get help from an attorney. Boyer’s team is committed to helping your company navigate these changes.

Our objective is to help keep your business, employees, and assets secure. Shoot us a message using our online contact form, or get in touch at  (407) 574-2573.

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