Your business is growing and gaining the attraction of other businesses that may give you may have an opportunity to engage in a lucrative merger or acquisition. Before jumping in, however, it is important to understand the four basic steps in the merger and acquisition process.
Step one: performing due diligence
The first step in a merger or acquisition is for the buyer to perform their due diligence. The purpose of due diligence is to uncover any possible financial or legal problems that could affect the merger or acquisition. Financial and legal advisors will execute a detailed revision of the target business’ operations, structure and assets that will ultimately be purchased.
Step two: executing a contract
After due diligence has been performed, the buyer and seller will negotiate and execute a contract. This contract will allocate risks that the buyer and seller will take on, based on what was discovered through due diligence. Two examples of merger or acquisition contracts include stock purchase agreements and asset purchase agreements.
Step three: closing on the deal
The contract for the merger or acquisition will describe the steps the buyer and seller must take to close the deal. These steps are heavily dependent on the specifics of the transaction. Two common steps in the closing process include paying the purchase price and delivering stock certificates.
Step four: fulfilling post-closing obligations
Even after the merger or acquisition deal has been closed, the buyer and seller may still have post-closing duties to perform. Two examples of post-closing duties include non-compete duties and non-solicitation duties. Not every merger or acquisition has post-closing obligations to fulfill.
Mergers and acquisitions can be complicated
Mergers and acquisitions can be complicated business dealings and missteps in the process can lead to delays or cause the deal to fall through. Many businesses interested in a merger or acquisition choose to consult with their attorneys throughout the process, to protect the interests of their business.