Steps to follow for successful company acquisitions

Learn about the different steps in company acquisitions and how mergers and acquisitions lawyers are vital in this process
Steps to follow for successful company acquisitions

Company acquisitions may sound easy to accomplish, but there are various legal, regulatory, and practical considerations that are involved in the whole process. In any of these stages, there’s no substitute for hiring the best mergers and acquisitions (M&A) lawyer to help in such a transaction.

What are company acquisitions?

Company acquisitions take place when one company (the acquiring company) purchases most, or all, of the shares or assets of another company (the target company).

There are different types of acquisitions, which also apply in Canada:

  • horizontal acquisition: when both the acquiring and target companies offer similar products or services; or
  • vertical acquisition: when the acquiring company buys a company that is necessary in its products’ supply chain.

Merger vs. Acquisition

An acquisition may be differentiated from a merger especially under Canada’s laws, although these terms are used interchangeably in some contexts.

Mergers occur when two separate companies form a new or a third company. This is different from acquisitions where the target company is absorbed by the acquiring company.

Watch this video to learn more about the differences between mergers and acquisitions and their purpose:

Read about the all-time biggest mergers and acquisitions in Canada if you’d like to learn more about these high-stakes business transactions.

Learn about the different merger and acquisition strategies that are appropriate for your business plans and how lawyers fit into the whole process.

What are the steps in company acquisitions?

In general, there are five steps involved in company acquisitions:

  1. Internal preparations
  2. Hiring an M&A lawyer
  3. Negotiations
  4. Due diligence
  5. Integration

Find out why hire a lawyer for mergers & acquisitions due diligence with this article.

1. Internal preparations

A company that plans to acquire another company has to prepare. This involves strategic planning and a series of meetings with its top officers, key leaders, and shareholders on how it will move forward with an acquisition.

Some of the important questions that need to be addressed at this stage are:

  • What are the specific needs of the company and how will the company acquisition solve these needs?
  • What assets and resources will be used in the acquisition?
  • What are the alternatives if the company acquisition fails? How will this be remedied or what are the company’s other options if it happens?

It will also be beneficial for a company to create its own corporate team whose only focus is on the company acquisition. It may involve accountants, human resource specialists, and lawyers. It may also involve the company’s financial partners – even prospective ones – that will be involved in the company acquisition, such as investors and bankers.

2. Hiring an M&A lawyer

Since there are various federal Canadian laws and regulations involved in successful company acquisitions, hiring a lawyer at its early stages would be a big help to the acquiring company.

M&A lawyers can help in several stages of company acquisitions, such as:

  • Corporate and securities regulations, including insolvency issues
  • Taxation or tax-specific compliance of any pre- and post-acquisition activities
  • Labor and employment considerations, especially if unions are involved
  • Compliance with environmental law, whenever applicable
  • Intellectual property rights to prevent any IP infringement
  • Government-required reviews regulated by Canada’s competition laws

M&As are heavily governed by contracts and agreements whose terms and conditions are full of legalese. This is where a lawyer can help.

Canada’s common law principles also apply to mergers and acquisitions, which lawyers could advise the company about.

It’s best to hire a mergers and acquisitions lawyer in your area. If your company is based in Montréal, for example, contact a Lexpert-ranked mergers and acquisitions lawyer in Québec.

Read about the different federal laws of mergers and acquisitions in Canada which affect the completion and conduct.

3. Negotiations

When the company is all set, including its corporate team for the acquisition, it can now start to actively seek out the target company.

There are various methods of looking for potential target companies. An acquiring company can reach out to a business competitor or spread the word among other businesses, banks, or commercial partners.

Afterwards, negotiations between the acquiring company and the potential target company will start. Here, the corporate team tasked with the acquisition begins their job, especially in choosing the right company to acquire.

At the same time, the acquiring company will have to negotiate its offer with its financing partners, if they are involved in the company acquisition. Here, a Letter of Intent may be signed by both parties while the other stages of acquisition push forward.

4. Due diligence

Although due diligence starts at any stage of company acquisitions, it’s important to get this done before or during the negotiations stage.

Due diligence is the process of objectively investigating the target company’s structure, assets, liabilities, and any other corporate information. Its purpose is to help the acquiring company decide whether to pursue the acquisition or not.

The target company will also carry out due diligence on the acquiring company.

At this point, it is important that both companies are transparent and transact with each other in good faith to prevent any suspicions which may affect the success of the acquisition. For this purpose, preparatory contracts such as a Non-Disclosure Agreement may be agreed upon by both parties.

M&A lawyers are also important to prevent any violations when conducting due diligence.

Lawyers can interpret any legal documents that the other company may provide, and even conduct the legal part of due diligence. This may include checking with the courts for any pending litigation against or by the target company. A lawyer can also do some legal research into any of the target company’s brushes with the law.

It is important that companies take time in doing due diligence. Having an informed decision regarding the company acquisition is crucial. This will ultimately prevent any future problems regarding the acquisition.

Read our recent article on the importance of due diligence and why you need a lawyer for this important step.

5. Integration

Once the company has decided on the company it wishes to acquire, it will then pursue the acquisition proper. The Purchase Agreement or Sales Agreement may be signed at this time, including any other contract as agreed by both companies.

An integration plan will help at this stage of the company acquisition. Before any deal is made, both companies must first agree on the process of integrating the two companies.

What happens when a company gets acquired?

When a company gets acquired, it will be fully absorbed by the acquiring company or be liquidated in favor of the acquiring company. Its specific effects will depend upon the acquisition agreement of both companies, which is laid down in the integration plan.

Want to know more about the steps in company acquisitions? Contact the best mergers & acquisitions lawyers in Canada as ranked by Lexpert to jumpstart your planned company acquisition.