Mergers and Acquisitions

 

Mergers and acquisitions describe a general business strategy dealing with the buying, selling, dividing and combining of different companies that have overlapping interests and mutually beneficial assets.

 

Legal Distinctions

An acquisition is essentially the takeover of one company by another. While a merger is where two companies merge to become one, often completely new company.

 

Acquisitions are characterized as either an "asset purchase" or an "equit purchase. In an asset purchase, one company sells business assets to another company. In an equity purchase, one company purchases equity interests, or shares from another company. 

 

Mergers, asset purchases, and equity purchases are each taxed differently. The most beneficial structure for tax purposes will depend on the unique facts and circumstances of each case.

 

Initating the process...

These transactions generally begin with a letter of intent, expressing one party's interest in the deal. The letter of intent is not binding on either party, but it initiates an exploratory process wherein the parties can consider the options. Both parties will consult with their attorneys, accountants, and executives from both sides to decide on the prudence of the transaction.

 

After this discovery period, the parties may draw up a definitive agreement. These agreements are very extensive and focus on several important aspects.

 

• Conditions which must be satisfied before any obligation arises

• Representations and warranties with respect to the company being purcahsed

• Covenants which define the operation of business between executing the contract and closing.

• Termination rights, which may exist based on a failure to satisfy certain conditions, misrepresentations about the company, poor business operations in the interim, or other breaches of contract.