During an M&A transaction, many issues populate that need immediate attention. In this article, I’m going to highlight the top 5 burning issues and the challenges thereof, that both the parties face while negotiating a transaction.

1. Structure of the deal

There are 3 ways to structure a transaction: (i) stock sale, (ii) asset sale and (iii) merger. The acquirer and the target have competing interests with each of 3 alternatives. Hence, it’s important to recognize and address material issues while negotiating a deal structure. Highlighted below are 4 areas that needs to be considered when structuring the deal

i.    Liability: Unless contractually negotiated otherwise, in a stock sale, upon the consummation of transaction, the target’s liabilities are transferred to the acquirer by operation of law. Similarly, in a merger, the surviving entity assumes all liabilities of the merged entity. But, in an asset sale, the acquirer picks and chooses and assumes only the designated liabilities; the non-designated ones remain with the target

ii.    Contracts: Target’s existing contracts might sometimes prohibit assignment. In that case, a pre-closing consent to assignment must be obtained. However, for a stock purchase or merger, no such requirement exists unless the contracts state otherwise; the prohibitions get activated upon a change of control or by operation of law

[Click to continue reading]