Forms of mergers and acquisitions

Before or during the orientation phase, it is important to think about how to merge, acquire or be acquired in the best way possible. What forms of mergers and acquisitions can we distinguish and what are the various consequences? Some of the most commonly used forms are explained below.

Sale of shares

A large part of all companies have transferred their activities in a private limited company or a public limited company. One of the advantages of transferring the business to a private or public limited company is that, through the sale of the shares, the legal and economic ownership of the business (read: company) is transferred. The most basic form is when the seller who holds 100 percent of the shares negotiates with a (prospective) buyer and that a purchase agreement is concluded in which the shares are sold to the new owner. A purchase agreement involving shares is often referred to as an SPA (Share Purchase Agreement).

What exactly does an SPA (Share Purchase Agreement) entail?

This agreement not only specifies the purchase price and transfer date, but also crucial elements such as guarantees from the seller, indemnities, payment structures, agreements regarding personnel, and any non-competition clauses. The SPA thus forms the legal basis for the transaction and regulates the rights and obligations of both parties before, during, and after the acquisition.

Assets transaction

An alternative to the sale of shares is the transaction of assets. In an asset transaction, the shares of the company are not sold. Instead, “only” certain goods or activities are sold. The purchase agreement, which provides a description of the goods sold, is often a more extensive document, because it specifies exactly what is being sold and what rights and obligations are or are not attached to it. This purchase agreement will describe which goods and/or activities are the subject of the sale. Examples include machinery, the customer database, orders, stock, etc., but also, for example, members of staff. This transfer may cause the company to cease to exist, with its activities merging into the company of the party that purchased these goods and activities. With regard to the staff members included in the transfer, they will have a new employer. Only the assets are acquired by another legal entity, which will also become the new employer. The request for advice, therefore, must pay a great deal of attention to the consequences for the employees. Note that such a transfer often also affects employees who are not acquired by the purchasing party.

Legal merger or split-off (division)

If two or more parties wish to continue as a single legal entity, they may decide to legally merge. This, for example, can be achieved by establishing a legal entity in which the two merging parties will unite. It may also be that there is a receiving company which will incorporate the other company. The result of a legal merger is that all rights and obligations resting on the legal entities are transferred, including all rights and obligations of the employees. The opposite variant is the legal division or split-off: one legal entity is divided into two or more new legal entities. Do you want to know what the options are for your company whilst still in the orientation phase or are you considering an acquisition? Then feel free to contact one of our specialists. They will be able to help you further in an exploratory meeting without obligations.

Due diligence

When considering a merger or acquisition, always remember to conduct a thorough due diligence investigation. This involves not only examining the books, but also looking at the legal, financial, tax, and commercial aspects of the company or companies involved. This will give you the most complete picture possible of what you are buying or with whom you will be working. A due diligence investigation also helps you minimize the risks involved in mergers and acquisitions. Due diligence is essential for the buyer. Based on the results of the investigation, the purchase price or enterprise value may be reconsidered and additional guarantees or specific indemnities may be included in the purchase agreement. This gives the buyer more certainty about what they are buying. And, not unimportantly, this is also to the seller’s advantage because it reduces the likelihood of subsequent discussions between the parties about parts of the transaction.

Still in the exploratory phase?

Would you like to know what options are available for your company during the exploratory phase, or are you considering a takeover? Then please contact one of our specialists. They can help you further in a no-obligation exploratory meeting.