Services

Mergers and Acquisitions

Introduction

Mergers and Acquisitions (M&A) are fundamental to business growth, acting as the primary legal and financial pathway for companies to achieve major strategic goals. Whether expanding into new markets, gaining access to critical technology, or skilled manpower or combining operations to increase efficiency, M&A transactions are complex corporate undertakings that change the structure of a business. These deals which involve one company buying, combining with, or investing in another require precise legal navigation to manage significant financial risk, operational risk, satisfy strict regulatory requirements and compliance done by the target company. The Parties to the deal need to ensure that strategic objectives of the businesses are protected from the outset.

Types of M&A Transactions :

The M&A practice encompasses a wide range of corporate actions and transactions, broadly categorized by the structure of the deal:

Acquisitions:

This involves one company purchasing the assets or a controlling interest (usually shares) in another company. Key legal instruments include the Share Purchase Agreement (SPA) for the sale of shares or Share Subscription Agreement or an Asset Purchase Agreement (APA) for the transfer of an entire business undertaking as a going concern.

Mergers and Amalgamations:

This involves two or more companies legally combining to form a new single entity. This type of restructuring requires approval from the National Company Law Tribunal (NCLT) and often involves intricate schemes of arrangement, ensuring fairness to all classes of shareholders and creditors.

Investments:

This involves an investor (PE/VC fund or strategic corporate) infusing fresh capital into the Target Company. The primary documentation governing this inflow is the Share Subscription Agreement (SSA), which outlines the terms under which the investor acquires newly issued shares. This is always coupled with a detailed Shareholders' Agreement (SHA) that defines corporate governance, anti-dilution rights, and exit mechanisms.

Joint Ventures and Strategic Alliances:

While not a complete acquisition, this involves two or more entities combining resources for a specific purpose. The relationship is primarily governed by a Joint Venture Agreement (JVA) and a detailed Shareholders' Agreement (SHA), which defines corporate governance, exit mechanisms, transfer of shares, and deadlock resolution etc.

Benefits of Strong Legal Oversight in M&A:

Securing robust legal oversight throughout the M&A lifecycle provides crucial benefits, protecting the value created by the transaction and mitigating post-closing risk:

a) Risk Allocation and Mitigation: Definitive agreements clearly define how pre-existing and future risks are distributed between the Acquirer and the Seller. This involves structuring comprehensive Representations and Warranties and appropriate Indemnity clauses to safeguard against undisclosed liabilities.

b) Optimal Structuring and Tax Efficiency: Legal advice ensures the transaction is structured in the most legally compliant and tax-efficient manner, whether as a stock purchase, asset purchase, slump sale, or amalgamation, thus preserving deal value.

c) Clarity on Conditions Precedent (CPs) and Subsequent (CSs): The legal documentation ensures that the closing of the deal is contingent upon the satisfaction of specific Conditions Precedent (CPs) (e.g., obtaining regulatory approvals, extinguishing specific liabilities, or securing shareholder consent) and defines actions to be taken post-closing (Conditions Subsequent (CSs)).

d) Effective Post-Closing Integration: A well-drafted Shareholders' Agreement (SHA) addresses governance issues, management rights, protection of minority shareholders interest and operational controls for the combined or acquired entity, ensuring a smooth transition and long-term business continuity.

Process of M&A:

The M&A process is multifaceted, moving from initial strategy to final integration:

Initial Strategy and Term Sheet

The process begins with the identification of a target, followed by the negotiation and execution of a non-binding Term Sheet, which formalizes the commercial agreement to proceed.

Due Diligence

A detailed Due Diligence exercise (Legal, Financial and Operational) is conducted to verify the target's value and uncover material risks, influencing the final valuation and negotiation points.

Negotiation of Definitive Documents

Based on the Due Diligence findings, the parties negotiate and finalize the definitive agreements, such as the SPA, SSA and SHA and ancillary agreements like Employment Agreements.

Finalisation of Conditions and Approvals

The legal teams ensure all contractual Conditions Precedent (CPs) are met, and all necessary internal and external approvals (e.g., CCI, NCLT, or sectoral regulators) are secured.

Closing and Execution

Once all CPs are satisfied, the Closing occurs, where the transfer of ownership (shares or assets) takes place against the payment of the agreed consideration.

Post-Closing Matters

This phase involves meeting all Conditions Subsequent (CSs), managing the post-closing indemnity claims, and ensuring the smooth operational and legal integration of the acquired business into the Acquirer's framework.