Mergers and acquisitions (M&A) are beneficial for the companies involved; however, the more the profits, the heavier the process. This is where mergers and acquisitions lawyers come in – to simplify the process and guide the parties in completing a successful company merger.
What are the steps in successful company mergers?
The process of company mergers will depend on the circumstances of each company involved. This may also include the different Canadian laws which may affect these processes.
Other factors may come into play, such as the size of the merging companies and the type of merger they are entering (e.g., horizontal, vertical, etc.).
The steps in successful company mergers are:
- Strategic preparations
- Negotiations
- Due diligence
- Deal closure
- Integration
1. Strategic preparations
Before anything else, companies that plan to merge must first prepare and strategize. Coming up with an M&A strategic plan will help you succeed in your planned company merger.
A good M&A strategic plan will address these concerns:
- the expectations and purpose of your company in entering a merger
- your company’s financing needs in pursuing the merger
- the ideal result that will address your company’s needs
Strategizing would need the participation of all your stakeholders. This series of meetings in strategic preparations should include your company’s shareholders and top officers.
M&A team
Part of the preparations would be to form an M&A team who would supervise the nitty-gritty of the whole merger process. At the minimum, this team must include:
- senior financial officers and accountants
- lawyers with expertise in M&As
- human resource officers
- financial partners, such as investors
2. Negotiations
After your company has internally prepared itself, the next step is to look for target companies and start negotiating with them.
This will involve preliminary research into your target companies’ general information (e.g., its financial standing, customers, operations) and how a specific target company fits into your M&A strategy.
When you’ve decided on the specific target company to merge with, your M&A team will proceed with negotiations. The target company may also have to strategize on their own, which may take up more time.
Both companies may also agree on a non-binding letter of intent as an initial step to formally conduct negotiations and to proceed with the other stages of company mergers.
Both companies must agree on an integration plan which will be implemented after the deal is closed. This will also give both companies, especially your employees, an idea of what to expect once the merger is complete.
3. Due diligence
Your M&A team will now proceed with conducting due diligence. At this point, your company and the target company have agreed on the merger after a series of negotiations.
Due diligence is that process in a company merger where you’ll investigate the other company to see whether it is the perfect choice for the merger.
It is based on building trust and confidence with the other company, and to check whether what they presented during the negotiations is true or not.
It may include checking the target company’s:
- documents of incorporation
- assets and liabilities, including credit standing
- tax compliance
- court records and litigation histories
- human resource and employment structures
- among others
This part of the process of company mergers is the deal breaker for most. As such, it’s important to invest more time and resources, including hiring a lawyer, in conducting due diligence. This will help your company decide whether to pursue the merger or not.
Watch this video to know more about due diligence in mergers and acquisitions:
Discover the important things and to do’s that must be included in your mergers and acquisitions due diligence checklist in this article.
Consult with an M&A lawyer to know more about how to conduct due diligence or any other process in company mergers. If you’re located in Vancouver, hear more from the best mergers and acquisitions lawyers in British Columbia as ranked by Lexpert.
Confidentiality agreement
You and the target company may also want to consider signing a confidentiality agreement or a non-disclosure agreement.
This is to protect both companies. The exercise of due diligence will require both companies to present all necessary documents – including confidential ones.
4. Deal closure
The deal closure in company mergers comes after due diligence is completed. Legal documents for the deal closure will have to be agreed upon by the parties, including the submission of necessary documents to government regulatory authorities.
Anti-trust and competition laws
Lawyers for M&A can provide you with a more detailed interpretation of Canada’s anti-trust and competition laws, which is important in pursuing company mergers in the country.
Part of deal closure is to check whether the company merger will fall as a notifiable transaction. It means that pre-merger notifications must be filed with the appropriate government agency.
In general, there are two Canadian laws that you should take note of:
- Competition Act: a notification must be sent to the Competition Bureau when certain thresholds are met, such as transaction size, party size, and shareholding thresholds
- Investment Canada Act (ICA): provisions on notifications will apply when foreign investors or investments are involved
- Canada Business Corporations Act (CBCA): applies to M&As in the form of amalgamations concerning corporations
In addition, reviews may also be conducted by the concerned Canadian government agencies, such as:
- Competition Bureau
- Minister of Canadian Heritage
- Minister of Innovation, Science and Economic Development
Compliance with these laws and government agencies is important. Penalties, such as the following, may be imposed when violations are committed against these laws:
- dissolution of the completed merger
- divestiture of assets
- administrative fines
5. Integration
After the merger deal has been finalized and regulatory approval has been obtained, what remains is the integration of the two companies.
While this cannot be completed overnight, a smooth integration involves combining:
- employees and organizational structures
- company assets (both tangible and intangible)
- IT systems
- product and branding considerations
- among others
What is an example of a company merger in Canada?
Some examples of company mergers in Canada are between:
- Husky Energy and Cenovus Energy in 2020 for C$3.8 billion
- Reuters Group PLC and Thomson Corporation in 2007 for US$17.6 billion
- Rogers Communications and Shaw Communications in 2023 for around C$20 billion
For more examples of mergers, read our article on the all-time biggest mergers and acquisitions in Canada.
To know more about the steps for successful company mergers discussed in this article, consult with a Lexpert Ranked mergers & acquisitions lawyer in Canada.