There are times when a corporation finds itself in situations which it did not anticipate when it was just in its formative stages. The company could be struggling, for example; on the flip side, it could be looking to expand the business. It could also just need to reorganize its internal processes and systems.
This is where mergers, acquisitions, and corporate restructurings come in.
What are mergers, acquisitions, and corporate restructurings?
Corporate restructuring is the process where a company restructures or reorganizes itself.
It can be done:
- at the internal level (e.g. when a department is dissolved or merged)
- at the company level (e.g. when the whole company is merged with or acquired by another company)
As such, mergers and acquisitions (M&As) are one of the ways for a company to conduct restructurings.
Other forms of corporate restructurings include:
- buybacks
- disinvestments
- franchising
- joint ventures or partnerships
- splitting or de-mergers
Reasons for corporate restructurings
There are many reasons why entities involve themselves in mergers, acquisitions, and corporate restructurings.
Some of these reasons include:
- to improve profitability
- to cut costs
- to prepare itself for an M&A
- to address excessive debts
- to solve workplace concerns
Common among all these reasons is that these are mitigating or reactive measures after a company or corporation has established itself and operated.
Usually, when problems arise, the corporate entity tries to salvage itself, without the need to go into insolvency or bankruptcy. Under Canadian laws, corporate restructurings are also offered to insolvent or bankrupt companies as a solution.
Corporate restructurings do not necessarily involve negative reasons all the time. It may also be an opportunity for companies to expand.
In other words, mergers, acquisitions, and corporate structurings are done to ensure the survival of the company.
Mergers vs. acquisitions
While these two are frequently associated with each other, there are certain differences between a merger and an acquisition.
In most cases, mergers are dubbed as a “friendly” transaction between two companies, but acquisitions are more of a “hostile” one. Acquisitions are also called takeovers, where one company purchases or assumes control of another. Mergers are a consolidation of the two companies.
Acquisitions are also negatively framed because they usually occur when a company is on the brink of bankruptcy (which is why it has agreed to be acquired by another).
On the other hand, mergers are usually a mutual transaction between two companies, where there’s equal power between the two during the process.
There are some commonalities between the two. Both result in a new entity that now has new opportunities that it can explore.
Merger and amalgamation strategies
There are different merger and acquisition strategies that companies can use when doing corporate restructurings. These strategies include:
- vertical
- horizontal
- conglomerate
- market extension
- product extension
What does corporate restructuring involve?
Corporate restructurings usually involve any or a combination of the following:
- changes in the internal operations: changes in branding, the way a company produces a product, marketing strategies, and sales operations
- changes in the organizational structure: changes in company departments, sections, and teams; or revamping employee positions, roles, and responsibilities
- obligations and debt restructurings: when the company-debtor proposes changes on its payment schedule, which may include refinancing and assets liquidation
There is no rule that suits all companies that want to do mergers, acquisitions, and corporate restructurings. What’s important is that it can answer the major problems faced by the company.
Process of corporate restructurings
Below is the general process when mergers, acquisitions, and corporate restructurings are done by a company:
- Preparatory stage and internal evaluation: company stakeholders, including key employees, meet to evaluate the company’s areas for improvement
- Identification of restructuring strategy: whether to use merger, acquisition, or any other forms of restructuring
- Conduct due diligence: if another entity is involved in the restructuring, due diligence is done by a team, usually composed of financial and legal experts
- Implementation and integration: to successfully finish the restructuring; integration will also apply when there’s M&A involved
- Post-implementation evaluation: company stakeholders, along with new ones, once again meet to check whether the objectives it initially set are met
Watch this video for a different perspective on the process of corporate restructurings:
For companies thinking of doing a merger, an acquisition, or any corporate restructuring, contact a lawyer in your area first. Firms in Montréal, for example, can consult the best mergers and acquisitions lawyers in Québec.
What are the costs of mergers, acquisitions, and corporate restructurings?
The costs will depend on several factors:
- contracts with third parties that need to be cancelled
- expansions that need to be implemented
- scope of the corporation’s operations
- timeline to complete the restructuring
- training current and new employees
It's important that at the preparatory stage, the costs are considered before mergers, acquisitions, and corporate restructuring are implemented.
This will save the company from further financial stress, especially if it’s already struggling.
What Canadian laws apply in corporate restructurings?
Corporate restructurings are usually done with the help of various professionals, including lawyers who can advise clients on what Canadian laws to follow.
One of the major statutes that companies should be wary about is Canada’s competition law when doing mergers, acquisitions, and corporate restructurings.
The federal Competition Act in Canada is one of its main sources, including the issuances of the country’s Competition Bureau.
When corporate restructurings are done to address the company’s bankruptcy and insolvency, the following federal laws may also apply:
- Bankruptcy and Insolvency Act
- Companies' Creditors Arrangement Act
Canadian employment laws may also apply, especially if it involves changes in employment statuses, downsizing, and layoffs. For this, the laws that apply would be provincial and territorial labour laws.
Lastly, companies should also note if intellectual property (IP) laws of Canada would apply. These laws would become relevant when mergers, acquisitions, and corporate restructurings involve:
- patents
- trademarks
- copyright
- industrial designs
To know more about mergers, acquisitions, and corporate restructurings, reach out to the best mergers and acquisitions lawyers in Canada as ranked by Lexpert.