If your company is involved in a merger in Louisiana, no matter the side it is on (buying or being bought), it can be difficult to keep track of everything that needs to happen from start to finish of the negotiations. A merger and acquisitions agreement involves a lot of paperwork, contracts and legal technicalities. There are a lot of things to look out for during an M&A, and while a New Orleans business formation lawyer can assist in the legal process, much of it is paying attention to the other company’s culture.
The idea behind a merger or acquisition is to make the two companies greater than the sum of their parts; for example, the shareholder value should be higher than the two companies combined. Strategizing a merger or acquisition is nothing new, and companies use these tactics across the world. By the end of 2015, the value of global mergers and acquisitions deals reached $4.28 trillion, and the US deals amounted to $1.97 trillion. While the two words are used simultaneously a lot, they do not mean the same thing. A merger is when two firms, usually of about the same size, agree to continue as a single new company. An acquisition is when one company takes over another and establishes itself as the new owner. The reason the two words are used together is because many times there is a middle ground in which both could apply.
When Should a Small Business Consider a Merger?
A company, no matter the type, will usually go through a defined evolution throughout its existence: startup, growth, maturity, decline, and then a rebirth or death. Depending on the stage which your company may be in, a merger or acquisition could be an opportunity or a necessity. Some scenarios where it may be prudent to consider an M&A involve:
- Increasing market share.
- The profit potential is higher when acquiring outside firms as opposed to investing in existing businesses.
- Partnering with other businesses can ensure survival.
- Restructuring equity and debt to make loans cost less, which will attract new shareholders.
As with anything, there are potential challenges to setting up an M&A agreement. Negotiating a deal may be complicated, and it will help to avoid an impasse by having a smart advisory firm review all terms of the deal.
Merger & Acquisition Checklist
An M&A can take months or even years to complete from start to finish, and the amount of things of which you’d need to keep track is essentially the business version of a pre-flight checklist for a commercial airliner. Some of the more important matters for the buyer to look for during the diligence process include:
- Beware of attempts to withhold information; even if innocuous it could be an indication of how they conduct business in general.
- As the buyer, interests and company culture of the other company should be similar.
- Compliance with government laws should be near the top of the list; if the company has received any notices from government agencies or isn’t complying with environmental regulations.
- Financial statements of all kinds should be thoroughly organized; warrant agreements, stock agreements, obligations, tax records, purchases and sales, and anything else related to the venture.
- What are the business and personal relationships with customers like? Note the revenues generated, risks, backlog and sales terms in place to get an idea of how daily business is conducted. More important than anything is the satisfaction of the customer.
What Are Louisiana Laws For M&A Agreements?
Each state has their own set of regulations regarding mergers. While all are similar, there are nuances to which attention must be paid. In Louisiana, the plan of merger must include all of the following:
- The name of each domestic or foreign business corporation or eligible entity that will merge and the name of the domestic or foreign business corporation or eligible entity that will be the survivor of the merger.
- The terms and conditions of the merger.
- The manner and basis of converting the shares of each merging domestic or foreign business corporation and eligible interests of each merging eligible entity into shares or other securities, eligible interests, obligations, rights to acquire shares other securities or eligible interests, or into cash, other property, or any combination of the foregoing.
- The articles of incorporation of any domestic or foreign business or nonprofit corporation, or the organic documents of any domestic or foreign unincorporated entity, to be created by the merger, or if a new domestic or foreign business or nonprofit corporation or unincorporated entity is not to be created by the merger, any amendments to the survivor’s articles of incorporation or organic documents.
- Any other provisions required by the laws under which any party to the merger is organized or by which it is governed, or by the articles of incorporation or organic document of any such party.
At the Smiley Law Firm, our attorneys have the experience to assist in an M&A agreement throughout every step of the process. We have offices in Baton Rouge and New Orleans for your convenience. Call today to set up a consultation with a business litigation attorney.