Commercial Law

 

 

While often used interchangeably, they have distinct legal meanings. A merger is the consolidation of two or more companies into a single new entity, with the original companies ceasing to exist. An acquisition is when one company buys a controlling stake in another, with the target company often becoming a subsidiary or being absorbed. The key difference lies in the outcome: a merger creates a new combined entity, while an acquisition sees one company "taking over" another.

Due diligence is a comprehensive and meticulous investigation of the target company. It's the most critical phase of a deal, where the acquiring party's legal, financial, and operational teams scrutinize all aspects of the business to identify potential risks, liabilities, and hidden issues. It involves reviewing financial records, legal contracts, employment agreements, intellectual property, and regulatory compliance. The findings of due diligence directly influence the deal's structure, valuation, and terms.

The primary legal documents vary depending on the deal structure, but they typically include:

  • Non-Disclosure Agreement (NDA): A confidential agreement signed at the beginning of the process to protect sensitive information.
  • Letter of Intent (LOI) or Term Sheet: A non-binding document outlining the key terms, price, and structure of the proposed deal.
  • Purchase Agreement: This is the definitive, binding contract that formalizes the transaction. It can be a Share Purchase Agreement (buying shares of the company) or an Asset Purchase Agreement (buying specific assets).
  • Ancillary Agreements: Documents covering specific aspects like employee matters, non-compete clauses, or transitional services.

The Companies Act is the cornerstone of M&A regulation. It provides the legal framework for corporate transactions, including mergers, acquisitions, and schemes of arrangement. It sets out the requirements for shareholder approvals, director's duties, and the protections afforded to minority shareholders, particularly through the Takeover Regulations Panel (TRP), which regulates "affected transactions" to ensure fairness and transparency.

The Competition Act is a critical piece of legislation in M&A. Certain mergers must be notified to and approved by the Competition Commission and the Competition Tribunal. This is to prevent deals that would "substantially prevent or lessen competition" in a market or have a negative impact on the public interest. Transactions are categorized as small, intermediate, or large based on financial thresholds, which determines the level of regulatory scrutiny.

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Mergers and Acquisitions

Mergers and acquisitions refer to transactions that restructure the ownership or control of companies through the transfer of shares, assets, or entire businesses. These transactions are governed by corporate law, contract law, regulatory requirements, and, in many cases, competition legislation. They are legally demanding because each stage—from initial engagement to post-closing integration—creates rights, obligations, and risks that must be managed with precision.

What are Mergers and Acquisitions?

An M&A transaction alters the legal and commercial shape of a business. It may change control, introduce new liabilities, modify governance structures, or shift contractual and regulatory responsibilities. These effects must be understood and documented clearly to ensure that the resulting entity can operate without uncertainty or dispute.

Legal Due Diligence

Due diligence is the primary investigative step in an M&A transaction and determines whether the proposed deal is viable. It involves a structured review of the target’s legal, regulatory, contractual, and financial position.

Core areas usually examined include:

  • Corporate records and governance
  • Contracts and commercial commitments
  • Pending or potential disputes
  • Regulatory licences and compliance
  • Employment arrangements
  • Intellectual property ownership
  • Tax obligations and filings

The purpose of due diligence is to identify liabilities, quantify exposure, and confirm whether the target can deliver what the transaction intends to acquire. Findings may require the purchase price to be adjusted, warranties to be strengthened, indemnities to be added, or, in serious cases, the transaction to be reconsidered. Due diligence is not a formality; it directly shapes the legal architecture of the deal.

Transaction Agreements

Once the scope of the transaction is confirmed, the parties record their rights and obligations in formal legal agreements. The most common are share purchase agreements, sale of business agreements, sale of assets agreements, and merger agreements. These documents allocate risk, regulate conduct between signing and closing, and govern how the parties will resolve issues that arise after completion.

Provisions typically address:

  • Conditions that must be satisfied before closing
  • The purchase price and the method of payment
  • Warranties and representations concerning the target’s condition
  • Indemnities for identified or unknown liabilities
  • Restrictions on conduct before and after closing
  • The transfer of employees, contracts, and regulatory obligations

Precision is essential because these provisions determine the remedies available if the transaction does not unfold as intended. Ambiguity in drafting often leads to disputes long after the deal has closed.

Regulatory and Competition Law Requirements

Many transactions cannot proceed without approval from the Competition Commission or other regulators. Whether notification is required depends on the financial thresholds and the structure of the transaction. Where approval is required, the parties must submit detailed information on the transaction’s rationale, market effects, and the nature of the businesses involved.

Regulators may impose conditions relating to employment, ownership, or operational commitments. Failure to obtain approval where required can render a transaction unlawful and expose the parties to penalties or unwinding orders. For this reason, regulatory analysis must take place early and must be integrated into the transaction timeline.

Tax and Deal Structuring

Structuring a transaction requires an understanding of how different methods of acquisition affect liability, tax exposure, and commercial continuity.

A share purchase transfers ownership of the company and its liabilities as a going concern, while an asset purchase allows the acquirer to select specific assets and avoid certain historical obligations. Each structure has distinct consequences for tax treatment, financing, employee transfers, regulatory approvals, and the enforceability of existing contracts.

The structure chosen must support the commercial purpose of the transaction while managing the legal consequences that arise from the chosen form.

Types of Mergers

A merger occurs when two entities combine to form a single company. The legal and commercial rationale determines the type of merger:

  • Horizontal: businesses in the same market combine operations.
  • Vertical: businesses in a supply chain consolidate.
  • Congeneric: companies with related offerings combine resources.
  • Conglomerate: companies with unrelated operations merge.
  • Market extension: companies selling similar products in different regions consolidate for expanded reach.

Each type presents different legal considerations relating to competition law, integration, valuation, and regulatory reporting.

VDM Attorneys – Mergers and Acquisitions Attorneys

VDM Attorneys advises clients across the full M&A lifecycle. Our work includes due diligence, drafting and negotiation of transaction agreements, regulatory engagement, tax-sensitive structuring, and the transfer of assets, employees, and obligations. We assist with the corporate, competition, tax, employment, real estate, and intellectual property issues that influence the outcome of a transaction, ensuring that the legal structure supports the commercial goals of the parties involved.