Mergers and acquisitions (M&A) is a practice area of the law, focused on domestic and global transactions aimed at consolidating businesses of two or more companies through legal operations such as mergers, purchase of assets, tender offers, hostile takeovers, among others.
M&A deals vary in terms of the complexity and sophistication of the legal operation implemented to carry them out. M&A deals are also used in a wide variety of industries to enable strategic growth for businesses. Although each M&A deal is not the same, there are usual stages implemented in many M&A transactions, as follows:
- Due diligence: The financial and legal advisors of the buyer make a comprehensive revision of the financial and legal matters of the target company or assets that will be purchased. The due diligence phase's purpose is to identify any potential financial or legal contingencies that might affect the transaction. The due diligence findings will be used as the primary source to prepare the contract for the M&A deal.
- The contract: The legal advisors of the parties prepare and negotiate a contract, which allocates the risks between the buyer and the seller according to the findings made in the due diligence phase. Among others, the contract may be in the form of a stock purchase agreement or an asset purchase agreement.
- The closing: The contract provides a detailed description of the actions both the buyer and the seller will have to perform to close the M&A deal. Each closing is different in consideration of the specifics of the transaction. For example, some closings may require that a governmental authority grants its authorization. Other closings may only depend on each party's individual actions (i.e., payment of the purchase price, delivery of stock certificates, etc.).
- Post-closing: Even if the M&A deal has been closed, the parties may still have to comply with post-closing obligations or actions, such as non-compete or non-solicitation obligations, among others. However, some M&A deals might not have any post-closing obligations.
[Last updated in July of 2021 by the Wex Definitions Team]