Mergers and Acquisitions Services
Growing your business can be achieved through various strategies. While some opt for organic growth by winning tenders, expanding premises and workforce, and increasing turnover capacity, this approach can be slow. Alternatively, direct acquisitions or mergers with complementary and similar businesses can lead to more rapid growth.
At Ronald Fletcher Baker, we understand that clients have varying levels of experience with the legal aspects of buying, selling, or disposing of a business. Whether you are well-versed in these matters or seeking specialist advice for the first time, our award-winning team is here to assist. We have successfully advised numerous clients on business sales and purchases, ensuring you receive expert guidance tailored to your situation.
Our Approach
We collaborate closely with clients, accountants, and financiers to identify risks and find the right solutions, all while keeping matters on budget and on track. Our reputation for providing sound legal advice is matched by our approachable and pragmatic manner. With offices across London and other key locations, our mergers and acquisitions solicitors bring extensive experience in advising companies across various sectors on business acquisitions and disposals.
Understanding Acquisitions
An acquisition involves one business acquiring another, typically through either a share purchase or an asset purchase.
- Share Purchase: Acquiring the entire share capital of another company, which retains all its trade, assets, and business. This can lead to the formation of a group, with the target company becoming a subsidiary of the buyer, while retaining all its assets and liabilities.
- Asset Purchase: Acquiring specific assets and liabilities of another company, allowing for selective acquisition of valuable components without taking on the entire entity.
In contrast, a business sale or asset acquisition involves acquiring either select assets or all of the assets that comprise the business, rather than buying the entire share capital of a company.
Which is Better – Share Purchase or Asset Purchase?
- Share Purchase: This method maintains continuity of business operations, with all customers, terms and conditions, employees, property, etc., staying in place. However, it also retains liabilities, making due diligence crucial. Extensive warranties and indemnities in the contract are necessary to address any undisclosed or unexpected liabilities, particularly regarding tax, as you will inherit the company’s historic tax position.
- Asset Purchase: This can be more disruptive, requiring the transfer of all assets, assignment of contracts, transfer of property, and compliance with relevant legislation (commonly referred to as a TUPE transfer). However, it allows for selective acquisition of assets, reducing liability risks. Due diligence remains important to ensure you acquire everything needed to run the business.
Ultimately, the right route depends on the buyer’s risk appetite and the commercial intentions and needs of the transaction.
Understanding Mergers
A merger is different from an acquisition in that it involves the consolidation of two businesses into one. This can take various forms, such as an initial acquisition followed by the selling shareholder acquiring shares in the buyer, moving assets within the group, or forming a holding company that acquires shares in both companies to create a group structure.
The key to a successful merger is getting the right structure for the business and ensuring it reflects how the business wants to operate post-completion. The commercial structure should be considered alongside legal and tax implications, with clearance from HMRC potentially required to avoid unexpected tax consequences.
Due diligence is essential in a merger, with both parties conducting thorough investigations to ensure a smooth transition.
Why Undertake an Acquisition or Merger?
An acquisition or merger can rapidly expand your business, providing equipment, staff, premises, and key customers. It offers enhanced exposure and instant access to an expanded business, often more quickly than organic growth. For example, acquiring a distribution arm can provide direct benefits beyond existing agreements.
Acquisitions or mergers can also expand your service offering or bring aspects of your business in-house, acquiring expertise that enhances your existing operations. For instance, a construction company might acquire a crane business to service its projects and offer crane services to others.
Cons of Acquisitions or Mergers
Transactions carry risks, mitigated by due diligence, indemnities, and warranties but not eliminated entirely. They can be unsettling, particularly in asset-only or business acquisitions, requiring smooth integration and synergy between businesses. Workplace culture alignment is crucial to avoid a failed transition.
Funding is a key factor, with upfront costs for purchases, taxes, and professional fees. Choosing the right target is essential to avoid significant financial outlay without long-term benefits.
Why Do You Need a Corporate & Commercial Lawyer?
Expanding your business through a merger or acquisition is high-risk. Your solicitor will assist with:
- Due Diligence: Beyond commercial due diligence, understanding the legal structure, contractual relationships, compliance, and transaction impact.
- Contracts: Preparing and negotiating binding documents, including share purchase agreements, business sale agreements, board minutes, resolutions, formal notices, waivers, assignments, property transfers, Companies House returns, powers of attorney, and indemnities.
- Disclosures: Reviewing and advising on formal disclosures from the seller, typically in a Disclosure Letter, to notify the buyer of matters incompatible with warranties sought.
These are just a few examples of the support your solicitor will provide. They will consult with you throughout the process, discuss various options, work with your other professional advisors, comment on tax clearance from a legal perspective, produce heads of terms, advise on funding and security documents required, and assist with post-completion matters such as aligning contracts, handling any staff restructures resulting from the deal, and moving assets within the group if needed.
When choosing a solicitor, ensure you engage with a firm that has the required rounded business expertise to support each aspect of your transaction, understands the industry and any idiosyncrasies, and can work with you and your other professional advisors to take a commercial approach, understanding the bigger picture and your ultimate goals.
The Company and Commercial, Employment, and Commercial Property teams at Ronald Fletcher Baker are ideally placed to advise and assist with any acquisitions or mergers you may be considering. We work together and with your other professional advisors to ensure you have all the support you need for your transaction.
For a confidential and no-obligation initial discussion about how we may be able to help, please contact the Corporate and Commercial team on 020 7613 1402.
