mergers and acquisitions case study with solution pdf

A blueprint for M&A success

Large mergers and acquisitions (M&A) tend to get the biggest headlines, but, as McKinsey research  indicates, executives should be paying attention to all the small deals, too. These smaller transactions, when pursued as part of a deliberate and systematic M&A program, tend to yield strong returns over the long run with comparatively low risk. And, based on our research, companies’ ability to successfully manage these deals can be a central factor in their ability to withstand economic shocks. 1 Martin Hirt, Sven Smit, Chris Bradley, Robert Uhlaner, Mihir Mysore, Yuval Atsmon, and Nicholas Northcote, “ Getting ahead of the next stage of the coronavirus ,” April 2020.

The execution of such a programmatic M&A strategy is not easy, however. Consider the situation at one global cosmetics company (a hypothetical case based on real-world experiences). Enthusiastic executives all had different ideas about which M&A opportunities the company should pursue (exhibit).

Undue influences

The hypothetical case of the global cosmetics company points to two common cognitive biases that can emerge when any company attempts to pursue programmatic M&A: the shiny-object syndrome and Maslow’s hammer.

The shiny-object syndrome —also known as extreme distraction. Companies that continually chase down the next new thing run the risk of pursuing initiatives in the wrong order, skipping foundational tasks, or duplicating efforts and investments.

The M&A team at the cosmetics company, for instance, was reactive. It was swayed by deals sourced by third parties, and it ended up inventing growth strategies around possible, exciting targets without a clear understanding of how they could generate value.

Maslow’s hammer. In his 1966 book The Psychology of Science (HarperCollins), psychologist Abraham Maslow stated, “I suppose it is tempting, if the only tool you have is a hammer, to treat everything as if it were a nail.” This is the approach the cosmetics company favored—establishing a well-organized M&A team but then using it to drive almost all growth rather than applying it only to those opportunities best suited to be bought, not built.

Without an M&A blueprint to provide an incontrovertible fact base and action plan, the cosmetics company’s efforts to implement programmatic deal making turned into a quixotic, time-wasting effort.

The CEO was pushing for a big bet on digital given the company’s superior financial position. Some senior leaders proposed expansion in greater China, the fastest-growing market for premium cosmetics. Other business-unit leaders saw poten­tial in the markets for organic products and men’s grooming. All had their own agendas (see sidebar, “Undue influences”).

Propelled by a healthy dose of FOMO (or fear of missing out) but lacking a clear set of priorities, the M&A team made multiple small bets on a range of businesses—even on some unexpected targets in adjacent markets (such as pet grooming). But the team did not have a clear plan for creating value from these targets nor for integrating them into the current business structure. The result? The organization ended up wasting time and resources on deals that were mostly unsuccessful, and its executives unintentionally created an unwieldy portfolio of businesses.

The M&A blueprint prompts business leaders to conduct a thorough self-assessment along with a comprehensive market assessment.

As this example illustrates, success in programmatic M&A requires much more than just executing on a long string of deals. Acquirers must articulate exactly why and where they need M&A to deliver on specific themes and objectives underlying their overarching corporate strategies. In addition, they must give careful thought as to how they plan to pursue programmatic M&A—including constructing a high-level business case and preliminary integration plans for each area in which they want to pursue M&A.

Taken together, these factors combine into what we call an M&A blueprint. In this article we discuss how it can be implemented to help organizations remain unrelentingly focused on their investment thesis throughout the deal process. Having a clear M&A blueprint is even more critical as com­panies begin to consider how to rebound from COVID-19. Without an M&A blueprint, it will be more difficult for companies to distinguish between through-cycle opportunities  that are consistent with their corporate strategy and “low hanging, distressed asset” deals that are not.

M&A blueprint: The building blocks

The M&A blueprint can help executives answer three main questions: Why and where should we use programmatic M&A to achieve our corporate strategy? And how should we use programmatic M&A to achieve our corporate strategy? Answering these questions will require asking still more clarifying questions about specific organizational strengths and capabilities, resources available, and other inputs to effective deal making.

Understanding ‘why’ and ‘where’

The M&A blueprint prompts business leaders to conduct a thorough self-assessment along with a comprehensive market assessment. The self-assessment helps establish the baseline from which to identify gaps in corporate ambitions as well as the opportunities for M&A to fill these gaps. It involves examining a company’s key sources of competitive advantage and testing their scalability to determine whether they would still play to the company’s advantage after a transaction. For its part, the market assessment acts as a “sense check” for business leaders, ensuring that the company’s M&A strategy capitalizes on the most recent and relevant trends, accounts for potential disruptions, and acknowledges competitors’ likely actions and reactions.

An M&A blueprint should also define any boundary conditions, or limits to the company’s use of M&A. These conditions, which are typically imposed by the CFO or the board investment committee, provide an important reality check: they define the con­straints on certain types or sizes of deals, thereby further narrowing the scope of potential targets. In setting these conditions, business leaders should account for preexisting financial hurdles—for instance, a rule that “deals must be accretive in the first year” likely would not apply to deals targeting growth and might therefore overly constrain M&A activity. Establishing these boundary conditions at the outset—with explicit agreement from the CFO and the board—can help put teeth into investment commitments and align everyone on negotiable and nonnegotiable terms.

Taken together, the self-assessment, market assessment, and review of boundary conditions can help executives understand the circumstances under which the pursuit of M&A makes the most sense, as well as the markets they are best positioned to enter. Indeed, the output of business leaders’ discussions about “why and where” will be a set of M&A themes that reflect the company’s best value-creation opportunities—those for which the company has the capabilities and resources to achieve intended strategic goals.

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What does a good M&A theme entail? For each theme, senior leaders should identify important deal criteria (categorizing potential targets by geog­raphy, sales channel, product type, and so on) as well as standard screening metrics like company size, number of employees, revenue growth, product port­folio, ownership, and so on. With this detailed information, organizations and M&A deal teams can continually cultivate potential targets within focused M&A themes while still being opportunistic about deals that present themselves.

Once these themes have been identified, business leaders should test them to ensure that they can execute against them—for instance, are there enough targets available, and do the right targets exist to fill gaps in the company’s capabilities? The M&A blueprint will be particularly critical in target-rich environments to help narrow down the list of potentials.

A “gold standard” M&A blueprint is detailed and focused on critical competitive information (value-creation levers, company capabilities, and so on). To understand whether their companies’ M&A themes are detailed enough, business leaders should consider whether they would be comfortable broadcasting those themes to competitors. The answer should be “no.” If the answer is “yes,” more work on the blueprint will be needed, as it and the related themes are likely not specific enough to be useful to M&A teams.

Understanding ‘how’

An M&A blueprint also prompts senior leaders to come up with a plan for “how” they will use M&A to further their overarching corporate strategies. Specifically, the M&A blueprint should delineate the high-level business case and preliminary integration plans associated with each M&A theme.

The business case should explain how the acqui­ring company plans to add value to the target or targets within a given M&A theme—for instance, the capital and operating expenditures needed (beyond the acquisition price) to integrate and scale the asset or assets. It should also outline the operational changes and capabilities that will be required to integrate the new assets—for instance, the creation of a new business unit or a set of new business processes to manage an acquired digital platform.

One large US healthcare company had committed to a strategy of building scale in its services businesses through M&A. First, it consolidated existing disparate service businesses under a new brand and organized them into three distinct units: pharmacy-care services, diversified health and wellness services, and data-analytics and tech­nology services. These became their three M&A themes. Then, over a ten-year period, this program­matic acquirer closed more than 60 deals, spending well over $20 billion, as it sought to fill out its portfolio along these three themes. The organization knew where it wanted to play and how.

Of course, the business case should include a preliminary integration plan for the acquired asset or assets that is consistent with the deal’s value-creation thesis—for instance, all shared services will be absorbed by the acquirer, and the target company’s product portfolio will be cross-sold to the acquirer’s existing customers.

Through their use of the M&A blueprint, business leaders can stay focused on those parts of the deal that can create the most value—especially impor­tant when companies are pursuing multiple deals within the same M&A theme. What’s more, they can prepare functional leaders, suppliers, and others well in advance for the actions they may need to take to integrate an asset or multiple assets.

How lots of small M&A deals add up to big value

M&a blueprint: putting it all together.

An M&A blueprint cannot and should not be developed based on “gut instinct” by a single execu­tive or defined post hoc to validate the theory behind an exciting deal. An executive or business-unit leader should lead its development but should be supported by corporate-strategy and corporate-development executives. The blueprint itself can take the form of a frequently updated and disseminated written report, or it can be a standing agenda item in every M&A and corporate-strategy meeting. Regardless of format, it can help decision makers assess critical factors relating to deal sourcing, due diligence, and integration planning before making any moves and taking steps to identify targets.

Looking back at the case of the cosmetics company, it becomes clear how an M&A blueprint could have helped the organization prioritize a bunch of scattershot ideas into a comprehensive programmatic M&A strategy.

With its market assessment, for instance, it might have seen that the market for digital cosmetics is projected to grow five times faster than the market for nondigital cosmetics. What’s more, market data might have revealed that customers want and expect to buy cosmetics through digital channels, and that there is no clear leader in the space. In its self-assessment, the M&A team might also have seen a gap in the company’s product portfolio com­pared with peers. And a look at boundary conditions might have revealed the time and latitude required to pay off initial acquisition investments, enabling the team to look beyond “base hit” deals with lower acquisition costs.

The M&A blueprint would have led the cosmetics company to a different outcome—perhaps a laser focus on acquiring the set of assets and capabilities needed to build a digital platform for selling cosmetics.

Spending time up front creating an M&A blueprint will pay off over the long term—particularly given the volume of deals associated with a programmatic M&A strategy. With M&A themes and criteria well defined and understood by all, companies can not only be more proactive but also more opportunistic. The top team will be aligned on strategy and focused on deal must-haves prior to reaching out to potential targets. Negotiations with potential targets can be grounded in the business case. Diligence processes can be accelerated and focused only on the most critical sources of value. Integration planning can begin early, with a focus on realizing the strategic intent of the deal rather than just stabilizing companies, people, and processes in the wake of change. Most important, the M&A blueprint can help executives tell a compelling story (inside and outside the company) about its deal-making strategy and its vision for the future.

Sophie Clarke is a consultant in McKinsey’s New Jersey office, where Liz Wol is an associate partner; Robert Uhlaner is a senior partner in the San Francisco office.

The authors wish to thank Anthony Chui, Jack Gordon, Steve Santulli, and Lexi Wang for their contributions to this article.

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Hacking the Case Interview

Merger & acquisition (M&A) cases are a common type of case you’ll see in consulting interviews. You are likely to see at least one M&A case in your upcoming interviews, especially at consulting firms that have a large M&A or private equity practice.

These cases are fairly straight forward and predictable, so once you’ve done a few cases, you’ll be able to solve any M&A case.

In this article, we’ll cover:

• Two types of merger & acquisition case interviews
• The five steps to solve any M&A case
• The perfect M&A case interview framework
• Merger & acquisition case interview examples
• Recommended M&A case interview resources

If you’re looking for a step-by-step shortcut to learn case interviews quickly, enroll in our case interview course . These insider strategies from a former Bain interviewer helped 30,000+ land consulting offers while saving hundreds of hours of prep time.

Two Types of Merger & Acquisition Case Interviews

A merger is a business transaction that unites two companies into a new and single entity. Typically, the two companies merging are roughly the same size. After the merger, the two companies are no longer separately owned and operated. They are owned by a single entity.

An acquisition is a business transaction in which one company purchases full control of another company. Following the acquisition, the company being purchased will dissolve and cease to exist. The new owner of the company will absorb all of the acquired company’s assets and liabilities.

There are two types of M&A cases you’ll see in consulting case interviews:  

A company acquiring or merging with another company

• A private equity firm acquiring a company, also called a private equity case interview

The first type of M&A case is the most common. A company is deciding whether to acquire or merge with another company.

Example: Walmart is a large retail corporation that operates a chain of supermarkets, department stores, and grocery stores. They are considering acquiring a company that provides an online platform for small businesses to sell their products. Should they make this acquisition?

There are many reasons why a company would want to acquire or merge with another company. In making an acquisition or merger, a company may be trying to:

• Gain access to the other company’s customers
• Gain access to the other company’s distribution channels
• Acquire intellectual property, proprietary technology, or other assets
• Realize cost synergies
• Acquire talent
• Remove a competitor from the market
• Diversify sources of revenue

A private equity firm acquiring a company

The second type of M&A case is a private equity firm deciding whether to acquire a company. This type of M&A case is slightly different from the first type because private equity firms don’t operate like traditional businesses.

Private equity firms are investment management companies that use investor money to acquire companies in the hopes of generating a high return on investment.

After acquiring a company, a private equity firm will try to improve the company’s operations and drive growth. After a number of years, the firm will look to sell the acquired company for a higher price than what it was originally purchased for.

Example: A private equity firm is considering acquiring a national chain of tattoo parlors. Should they make this investment?

There are a few different reasons why a private equity firm would acquire a company. By investing in a company, the private equity firm may be trying to:

• Generate a high return on investment
• Diversify its portfolio of companies to reduce risk
• Realize synergies with other companies that the firm owns

Regardless of which type of M&A case you get, they both can be solved using the same five step approach.

The Five Steps to Solve Any M&A Case Interview

Step One: Understand the reason for the acquisition

The first step to solve any M&A case is to understand the primary reason behind making the acquisition. The three most common reasons are:

• The company wants to generate a high return on investment
• The company wants to acquire intellectual property, proprietary technology, or other assets
• The company wants to realize revenue or cost synergies

Knowing the reason for the acquisition is necessary to have the context to properly assess whether the acquisition should be made.

Step Two: Quantify the specific goal or target

When you understand the reason for the acquisition, identify what the specific goal or target is. Try to use numbers to quantify the metric for success.

For example, if the company wants a high return on investment, what ROI are they targeting? If the company wants to realize revenue synergies, how much of a revenue increase are they expecting?

Depending on the case, some goals or targets may not be quantifiable. For example, if the company is looking to diversify its revenue sources, this is not easily quantifiable.

Step Three: Create a M&A framework and work through the case

With the specific goal or target in mind, structure a framework to help guide you through the case. Your framework should include all of the important areas or questions you need to explore in order to determine whether the company should make the acquisition.

We’ll cover the perfect M&A framework in the next section of the article, but to summarize, there are four major areas in your framework:

Market attractiveness : Is the market that the acquisition target plays in attractive?

Company attractiveness : Is the acquisition target an attractive company?

Synergies : Are there significant revenue and cost synergies that can be realized?

Financial implications : What are the expected financial gains or return on investment from this acquisition?

Step Four: Consider risks OR consider alternative acquisition targets

Your M&A case framework will help you investigate the right things to develop a hypothesis for whether or not the company should make the acquisition.

The next step in completing an M&A case depends on whether you are leaning towards recommending making the acquisition or recommending not making the acquisition.

If you are leaning towards recommending making the acquisition…

Explore the potential risks of the acquisition.

How will the acquisition affect existing customers? Will it be difficult to integrate the two companies? How will competitors react to this acquisition?

If there are significant risks, this may change the recommendation that you have.

If you are leaning towards NOT recommending making the acquisition…

Consider other potential acquisition targets.

Remember that there is always an opportunity cost when a company makes an acquisition. The money spent on making the acquisition could be spent on something else.

Is there another acquisition target that the company should pursue instead? Are there other projects or investments that are better to pursue? These ideas can be included as next steps in your recommendation.

Step Five: Deliver a recommendation and propose next steps

At this point, you will have explored all of the important areas and answered all of the major questions needed to solve the case. Now it is time to put together all of the work that you have done into a recommendation.

Structure your recommendation in the following way so that it is clear and concise:

• State your overall recommendation firmly
• Provide three reasons that support your recommendation
• Propose potential next steps to explore

The Perfect M&A Case Interview Framework

The perfect M&A case framework breaks down the complex question of whether or not the company should make the acquisition into smaller and more manageable questions.

You should always aspire to create a tailored framework that is specific to the case that you are solving. Do not rely on using memorized frameworks because they do not always work given the specific context provided.

For merger and acquisition cases, there are four major areas that are the most important.

1. Market attractiveness

For this area of your framework, the overall question you are trying to answer is whether the market that the acquisition target plays in is attractive. There are a number of different factors to consider when assessing the market attractiveness:  

• What is the market size?
• What is the market growth rate?
• What are average profit margins in the market?
• How available and strong are substitutes?
• How strong is supplier power?
• How strong is buyer power?
• How high are barriers to entry?

2. Company attractiveness

For this area of your framework, the overall question you want to answer is whether the acquisition target is an attractive company. To assess this, you can look at the following questions:

• Is the company profitable?
• How quickly is the company growing?
• Does the company have any competitive advantages?
• Does the company have significant differentiation from competitors?

3. Synergies

For this area of your framework, the overall question you are trying to answer is whether there are significant synergies that can be realized from the acquisition.

There are two types of synergies:

• Revenue synergies
• Cost synergies

Revenue synergies help the company increase revenues. Examples of revenue synergies include accessing new distribution channels, accessing new customer segments, cross-selling products, up-selling products, and bundling products together.

Cost synergies help the company reduce overall costs. Examples of cost synergies include consolidating redundant costs and having increased buyer power.

4. Financial implications

For this area of your framework, the main question you are trying to answer is whether the expected financial gains or return on investment justifies the acquisition price.

To do this, you may need to answer the following questions:  

• Is the acquisition price fair?
• How long will it take to break even on the acquisition price?
• What is the expected increase in annual revenue?
• What are the expected cost savings?
• What is the projected return on investment?

Merger & Acquisition Case Interview Examples

Let’s put our strategy and framework for M&A cases into practice by going through an example.

M&A case example: Your client is the second largest fast food restaurant chain in the United States, specializing in serving burgers and fries. As part of their growth strategy, they are considering acquiring Chicken Express, a fast food chain that specializes in serving chicken sandwiches. You have been hired to advise on whether this acquisition should be made.

To solve this case, we’ll go through the five steps we outlined above.

The case mentions that the acquisition is part of the client’s growth strategy. However, it is unclear what kind of growth the client is pursuing.

Are they looking to grow revenues? Are they looking to grow profits? Are they looking to grow their number of locations? We need to ask a clarifying question to the interviewer to understand the reason behind the potential acquisition.

Question: Why is our client looking to make an acquisition? Are they trying to grow revenues, profits, or something else? 

Answer: The client is looking to grow profits.

Now that we understand why the client is considering acquiring Chicken Express, we need to quantify what the specific goal or target is. Is there a particular profit number that the client is trying to reach?

We’ll need to ask the interviewer another question to identify this.

Question: Is there a specific profit figure that the client is trying to reach within a specified time period?

Answer: The client is trying to increase annual profits by at least $200M by the end of the first year following the acquisition.

With this specific goal in mind, we need to structure a framework to identify all of the important and relevant areas and questions to explore. We can use market attractiveness, company attractiveness, synergies, and financial implications as the four broad areas of our framework.

We’ll need to identify and select the most important questions to answer in each of these areas. One potential framework could look like the following:

Let’s fast forward through this case and say that you have identified the following key takeaways from exploring the various areas in your framework:

• Chicken Express has been growing at 8% per year over the past five years while the fast food industry has been growing at 3% per year
• Among fast food chains, Chicken Express has the highest customer satisfaction score
• Revenue synergies would increase annual profit by $175M. This is driven by leveraging the Chicken Express brand name to increase traffic to existing locations
• Cost synergies would decrease annual costs by $50M due to increased buyer power following the acquisition

At this point, we are leaning towards recommending that our client acquire Chicken Express. To strengthen our hypothesis, we need to explore the potential risks of the acquisition.

Can the two companies be integrated smoothly? Is there a risk of sales cannibalization between the two fast food chains? How will competitors react to this acquisition?

For this case, let’s say that we have investigated these risks and have concluded that none of them pose a significant threat to achieving the client’s goals of increasing annual profit by $200M.

We’ll now synthesize the work we have done so far and provide a clear and concise recommendation. One potential recommendation may look like the following:

I recommend that our client acquires Chicken Express. There are three reasons that support this.

One, Chicken Express is an attractive acquisition target. They are growing significantly faster than the fast food industry average and have the highest customer satisfaction scores among fast food chains.

Two, revenue synergies would increase annual profit by $175M. The client can leverage the brand name of Chicken Express to drive an increase in traffic to existing locations.

Three, cost synergies would decrease annual costs by $50M. This is due to an increase in buyer power following the acquisition.

Therefore, our client will be able to achieve its goal of increasing annual profits by at least $200M. For next steps, I’d like to assess the acquisition price to determine whether it is reasonable and fair.

More M&A case interview practice

Follow along with the video below for another merger and acquisition case interview example.

For more practice, check out our article on 23 MBA consulting casebooks with 700+ free practice cases .

In addition to M&A case interviews, we also have additional step-by-step guides to: profitability case interviews , market entry case interviews , growth strategy case interviews , pricing case interviews , operations case interviews , and marketing case interviews .

Recommended M&A Case Interview Resources

Here are the resources we recommend to learn the most robust, effective case interview strategies in the least time-consuming way:

• Comprehensive Case Interview Course (our #1 recommendation): The only resource you need. Whether you have no business background, rusty math skills, or are short on time, this step-by-step course will transform you into a top 1% caser that lands multiple consulting offers.
• Hacking the Case Interview Book   (available on Amazon): Perfect for beginners that are short on time. Transform yourself from a stressed-out case interview newbie to a confident intermediate in under a week. Some readers finish this book in a day and can already tackle tough cases.
• The Ultimate Case Interview Workbook (available on Amazon): Perfect for intermediates struggling with frameworks, case math, or generating business insights. No need to find a case partner – these drills, practice problems, and full-length cases can all be done by yourself.
• Case Interview Coaching : Personalized, one-on-one coaching with former consulting interviewers
• Behavioral & Fit Interview Course : Be prepared for 98% of behavioral and fit questions in just a few hours. We'll teach you exactly how to draft answers that will impress your interviewer
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MERGERS AND ACQUISITIONS IN TEA INDUSTRY: A CASE STUDY ACKNOWLEDGEMENT

Related Papers

International Research Journal Commerce arts science

Mergers are not a new phenomenon. After becoming popular in the 1970s and then waning, mergers and acquisition have been on the increase since 1995, when poor stock markets discouraged international investors but created a favorable environment for companies looking to expand through acquisition. In India, the concept of mergers and acquisitions was initiated by the government bodies. Some well known financial organizations also took the necessary initiatives to restructure the corporate sector of India by adopting the mergers and acquisitions policies. The Indian economic reform since 1991 has opened up a whole lot of challenges both in the domestic and international spheres. The increased completion in the global market has prompted the Indian companies to go for mergers and acquisitions as an important strategic choice. In the present study, Tata and Corus merger, the India's largest merger has been studied. The objective is to study the impact of the merger on the Tata steel company. The results shows that there is no significant change in the short run but the merger has a long term effect on the company.

dansh parve

The objective of this paper is to study, why organizations take the inorganic mode of expansion. However, the main focus is on studying the operating performance and shareholder value of acquiring companies and comparing their performance before and after the merger. To conduct a uniform research and arrive at an accurate conclusion, we restrict our research to only Indian companies. To get a perspective on India, we study oil and gas sector. We will test feasibility that mergers improve operating performance of acquiring companies. However on studying the cases, we conclude that as in previous studies, mergers do not improve financial performance at least in the immediate short term.

Texila International Journal

Growth of firms, their improvement, efficiency and profitability are cardinal benefits expected from mergers and acquisitions (M&A). This research is an attempt to seek for the effects of mergers and acquisitions on the performance of firms in the Ghanaian Stock Market from 2002 to 2012. The study was accounting based and used univariate analysis with t-testing as well as panel data methodology for the analysis. The univariate analysis revealed dwindling profitability after the merger for all the firms with the t-test showing significant difference in profitability before and after merger. The evidence from panel methodology indicates that M&A has significant negative effect on the profitability of firms. It is therefore imperative that M&As are properly planned, executed and evaluated. Specifically, efforts should be made to attract and retain key personnel of the merged firms through performance contracts or bonuses, proper conflict resolution measures should be put in place and conscious effort made to reap the expected returns of the merger. This is because gains from mergers and acquisitions do not just occur. Additionally, our results indicate that risk and firm size have a considerable effect on profitability of firms while debt capital and firm growth enhance firm profitability.

Asian Online Journal Publishing Group

This paper has two objectives: first, it examines the financial performance of twenty UK based acquiring companies over the period of five years (2009-2013) using financial ratios of Liquidity, Profitability and Solvency in order to empirically determine whether there is any significant financial performance changes in the operation of the underlying companies as a result of acquisitions. Both average ratio and paired t-test analysis have been conducted. The analysis concludes that none of the ratios proved statistical significance which shows that the underlying acquisitions did not influence changes in the financial performance of the acquiring companies. The paper also examines whether shareholders make short-term gain while opting for acquisitions by analyzing stocks return over 58 days window period i.e. 29 days prior to acquisition announcement and 29 days after acquisition announcement by applying CAPM model and AAR and CAAR analysis. The analysis concludes that none of the results show statistical significance which further asserts that UK shareholders do not make gain in the short-term as a result of the acquisition activities they have undertaken.

Chief Editor

he aim of this paper is to identify, assess and prioritize the risks associated with mergers and acquisitions with the aim of deploying focused and coordinated strategies to mitigate these risks. These strategies should target to minimize the impact of the perceived risk and to also maximize the realization of the opportunities that come with mergers and acquisitions (Hubbard, 2009). The paper identifies some of the reasons why companies opt to go into mergers or acquisitions. It also attempts to identify some of the critical factors responsible for the failure of mergers and acquisitions. It further suggests some solutions on how companies can minimize the risks associated with mergers and acquisitions. Keywords: Mergers, Acquisitions, risk assessment, synergy, due diligence, management, business integration, corporate culture

Ismail Nizam

The purpose of this research is to examine Merger and acquisition impact on Size, Profitability, Shareholders wealth, Market share and Segments in USA Technology companies. The research is conducted on 100 companies listed under Technology sector at NASDAQ which covered the period of 2010-2014, total observations of 100 firms-years. The dependent variables are Size, Profitability, Shareholders wealth, Market share and Segments and independent variables is Pre and Post Merger and Acquisition. The research employed Descriptive Pearson correlation coefficient and Paired T-Test and the findings shows only dividends and products to be positively correlated while all other variables found to be insignificant relation with merger and acquisition activity

IOSR Journals publish within 3 days

Abstract: This study compared shareholders wealth in pre and post mergers era using a selected insurance company in Nigeria as a case study. In order to achieve the objectives of the study, historical data was generated from 2001 to 2012 periods from the financial statement of AIICO Insurance Plc. The data was analyzed using descriptive statistics specifically line graph was used to determine trend in insurance company’s profit and t- test was used to determine the significant difference in shareholders wealth in pre and post mergers and acquisitions era This study found that there was an increase in the profit of insurance company and an insignificantly decreased in ROCE, DPS, EPS, NPM after the mergers and acquisitions exercise. Therefore the study concluded that mergers and acquisitions lead to increase in profit of insurance companies and decrease in returns to shareholders. This study recommended among others that even though mergers and acquisitions boost profit, evidence shows that the wealth of shareholders declined insignificantly after the mergers and acquisitions exercise. Therefore, shareholders should not only look at the returns on their funds, but also bother about the safety and protection of their funds. Finally, regulatory bodies like Securities and Exchange Commission (SEC) and National Insurance Commission (NICOM) should ensure that the insurance companies do not make their shareholders worse- off than they were before the mergers and acquisitions exercise through effective monitoring. Keywords: Merger, Acquisition, shareholders – wealth, Pre and Post Acquisition era

SSRN Electronic Journal

Richard B Rosen

Andry Nugroho

ASHUTOSH Singh

Merger and Acquisition have became exclusive trend in steel industry globally since the beginning of the 21 st century. Corporate integration in the corporate world is accomplishing significance and concentration especially with an exciting undertaking of intense globalization. This is the clear evidence from the importance and increasing growth of deal values and resulted with more corporate integration in recent times. These studies examine the key motive drivers and evaluate the impact of mergers and acquisition in steel industry on event study approach. This event study focused on Tata steel – Corus Acquisition during the year 2007. The study used a published financial statement which consists of secondary data. The financial statements are analysed and tested by using correlation coefficient and t-test. The outcome of the analysis disclosed that there is a significant difference between pre – post merger and acquisition in capital base and level of returns. There is a significant difference between pre – post merger and acquisition EPS. The finding of this study evolves those synergies, increased capitalization with the proof of changes in returns, profitability based on the research findings. It can be summarized that the corporate integration has increase the organizational performance also contributed to the growth of the steel industry.

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Mergers and acquisitions case studies and interviews | a guide for future lawyers.

Jaysen Sutton -

18 min read

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 mergers and acquisitions case studies and interviews, a guide for future lawyers.

Enjoyed this post? Check out our new Mergers and Acquisitions Course , which covers exactly what you need to know about M&A for interviews at top commercial law firms. Free access to this course is given to all premium subscribers .

If you don’t know what commercial law is or what commercial lawyers do, it’s hard to know whether you want to be one.

I’m going to discuss one aspect of commercial law: mergers and acquisitions or “M&A”, and with any luck, convince you it can be exciting.

I’ll also cover many of the aspects of mergers and acquisitions that you need to know for law firm interviews and case study exercises.

Let’s begin with an example, which highlights the impact of mergers and acquisitions. In 2017, Amazon bought Whole Foods and became the fifth largest grocer in the US by market share. This single manoeuvre shed almost $40 billion in market value from companies in the US and Europe .

The fall in value of rival supermarkets reflected fears over Amazon’s financial capacity and its potential to win a price war between supermarkets. Amazon the customer data to understand where, when and why people buy groceries, and it has the technology to integrate its offline and online platforms. When you’re in the race to be the first trillion-dollar company, acquisitions can take you a long way ( Edit: In August 2018, Apple managed to beat Amazon to win this title ).

But not all companies share Amazon’s success. In fact, out of 2,500 M&A deals analysed by the Harvard Business Review, 60% destroyed shareholder value .

That begs the question:

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Why do firms merge or acquire in the first place?

I’ll use law firms as an example. You’ll have seen that they often merge, or adopt structures called Swiss vereins, which allow law firms to share branding and marketing but keep their finances and legal liabilities separate.

In the legal world, it can be hard to find organic growth or organic growth can be very slow. Clients like to shop around, which can make it hard to retain existing business. It’s competitive: other law firms can poach valuable partners and bring their clients with them. And whilst entering new markets is an attractive option, it’s expensive, often subject to heavy-regulation and requires the resolve and means to challenge the existing players in that market.

Consolidation can help law firms, which are squeezed between lower-cost entrants and the global players, to compete. This is why we’ve seen many mergers in the mid-market. A combined firm is bigger, less vulnerable to external shocks, and has access to more lawyers and clients. The three-way merger between Olswang, Nabarro and CMS is a good example of this. The year before its merger, Olswang had revenues below £100m and a 77% fall in operating profit. Now, under the name CMS, it’s one of the largest UK law firms by lawyer headcount and revenue.

But mergers aren’t only a defensive move. They can allow law firms to speed-up entry into new markets. For example, were it not for its merger, it would have been difficult for Dentons to open an office in China. Chinese clients, especially state-owned enterprises, are often less likely to pay high legal fees, while local expertise and personal relationships can play a bigger role. There’s also regulation, which prevents non-Chinese lawyers from practicing Chinese mainland law, and plenty of competition from established Chinese law firms. That helps to explain Dentons’ 2015 merger with Dacheng, a firm with decades of experience and an established presence in the Chinese market. Now Dentons is positioned to serve clients investing in China, as well as Chinese clients looking for outbound work at a fraction of the time and cost.

Mergers can also synergies, or at least that’s one of the most frequently used buzzwords to justify an M&A deal. The idea is that when you combine two firms together, the value of the combined firm is more than the sum of its individual parts.

Synergies for a law firm merger could come from cutting costs by closing duplicate offices and laying off support staff. It could also be the fact that a combined law firm could sell more legal services than the two law firms individually, which may be bolstered by the fact that they can cross-sell their expertise to each other’s clients and benefit from economies of scale (e.g. better negotiating paper due to their size).

Finally, mergers can offer reputational benefits. Branding is an essential part of the legal world and combinations gain a lot of legal press. Mergers may allow fairly unknown firms to access new clients and generate far more business if they partner with an established firm. Very large global firms often pride themselves as a ‘one-stop shop’, pitching the fact that their size allows them to service all the needs of a client across any jurisdiction.

While it’s true that Swiss vereins have led the likes of DLA Piper and Baker McKenzie to develop very strong brands, collaboration hasn’t always worked out and some law firms have paid the ultimate price. Internal problems and mismanagement plagued the merger of Dewey & LeBoeuf , which, at the time, was called the largest law firm collapse in US history. Bingham McCutchen collapsed for similar reasons. Most recently, King & Wood Mallesons made the mistake of merging with an already troubled SJ Berwin. Poor incentive structures, defections and a fragile merger structure later led to the collapse of KWM Europe. Only time will tell whether Dentons’ 31 plus combinations, as well as the aggressive use of Swiss vereins by other firms, will be a success.

So that’s the why, I’ll now go through the how. Note, in this article, I’ll discuss the mechanics of acquisitions rather than mergers: you can see the difference in the definitions section below. As lawyers, you’ll find acquisitions are more common and you’re more likely to be asked about the acquisition process in law firm interviews and assessment centres.

Mergers & Acquisitions Definitions

• Acquisition : The purchase of one company by another company.
• Acquirer / Buyer : The company purchasing the target company.
• Asset purchase : The purchase of particular assets and liabilities in a target company. An alternative to a share purchase.
• Auction sale : The process where a company is put up for auction and multiple buyers bid to buy a target company.
• Due diligence : The process of investigating a business to determine whether it’s worth buying and on what terms it should be bought.
• Debt finance : This means raising finance through borrowing money.
• Equity finance : This means raising finance by issuing shares.
• Mergers : When two companies combine to form a new company.
• Share purchase : When a company buys another company through the purchase of its shares. An alternative to an asset purchase.
• Swiss verein : In the law firm context, this is a structure used by some law firms to ‘merge’ with other law firms. They share marketing and branding, but remain legally and financially separate.
• Target company : The company that is being acquired.

Kicking off the Acquisition Process

The buy side.

Sometimes the acquirer will have identified a company it wants to buy before it reaches out to advisers. Other times, it’ll work closely with an investment bank or a financial adviser to find a suitable target company.

Before making contact with the target company, the acquirer will typically undertake preliminary research, often with the help of third-party services to compile reports on companies. They’ll look through a range of material including:

• news sources and press releases
• insolvency and litigation databases
• filings at Companies House
• the industry and competitors

The aim is to better understand the target company. The company’s management will want to check for any big risks and form an early view of the viability of an acquisition. Then, if they’re convinced, the first contact may be direct or arranged through a third party, such as an investment bank or consultant.

Note: In practice, lawyers – especially trainees – spend a lot of time using the sources above. Companies House is a useful online resource to find out about private companies. It’s where you’ll find their annual accounts, annual returns (now called a confirmation statement) and information on the company’s incorporation.

The sell side

Sometimes, a target company wants to sell. The founders may want to retire, the company may be performing poorly, or investors may want to cash out and move on.

If a target company wants more options, it may initiate an auction sale. This is a competitive bid process, which tends to drive bid prices up and help the target company sell on the best terms possible. For example, Unilever sold its recent spreads business to KKR using this method.

But, an auction sale isn’t always appropriate. Sometimes the target company will enter discussions with just one company. This may be preferable if the company is struggling, so it can ensure speed and privacy, or the target company may have a particular acquirer in mind. For example, Whole Foods used a consultant to arrange a meeting with Amazon . That was after reading a media report which suggested Amazon was interested in buying the company.

Friendly v Hostile Takeovers

In the UK, takeovers are often used to refer to public companies. While we’ll be focusing on acquisitions of private companies, I’ll cover this here because they’re often in the news and sometimes come up in law firm interviews.

The board of directors are the people that oversee a company’s strategy. Directors owe duties to shareholders –  the owners of the company – and are appointed by the shareholders to manage a company’s affairs.

If a proposed acquisition is brought to the attention of the board and the board recommends the bid to shareholders, we call this a friendly takeover. But if they don’t, it’s a hostile takeover, and the acquirer will try to buy the company without the cooperation of management. This may mean presenting the offer directly to shareholders and trying to get a majority to agree to sell their shares.

Sometimes, it’s not too difficult; Cadbury’s board first rejected Kraft’s bid and accused the company of attempting to buy Cadbury “on the cheap”. Later, when Kraft revised its offer, the board recommended its bid to shareholders.

In other situations, hostile takeovers can be messy, especially if neither party wants to back down. This was the case in 2011 between the infamous activist investor Carl Icahn and The Clorox Company.

Icahn and the Clorox Company

In 2011, Carl Icahn made a bid to buy The Clorox Company (Clorox), the owner of many consumer products including Burt’s Bees. In his letter to the board, Icahn also tried to start a bidding war, inviting other buyers to step in and bid.

Clorox’s board rejected Icahn’s bid and quickly hired Wachtell, Lipton, Rosen & Katz, a US law firm, to defend itself. Wachtell wasn’t just any law firm. Icahn and Wachtell had been rivals for decades. In fact, between 2008 and 2011, Wachtell had successfully defended two companies from Icahn.

This was round three.

Clorox adopted a “poison pill” strategy, a tactic that allowed Clorox’s existing shareholders to buy the company’s shares at a discount. This made the attempted takeover more expensive. Martin Lipton, one of the founding partners of Wachtell, had invented the poison pill to prevent hostile takeovers in the 80’s. It was “one of the most anti-shareholder provisions ever devised” according to Icahn. Now, Clorox was using this weapon to stop the activist investor.

But that didn’t stop Icahn. In a scathing letter to the board , he raised his bid for the company.  A week later, the board rejected it again.

Icahn made a third bid. This time his letter threatened to remove the entire board. But the board didn’t back down.

Eventually, Icahn did.

The war between Icahn and Wachtell didn’t stop there. In 2013, Wachtell successfully defended Dell from Icahn. A few months after that, Icahn tried to sue Wachtell. In response, the law firm said:

“ Icahn takes his bullying campaign to a new level, seeking to intimidate lawyers who help clients resist his demands by making wild allegations and threatening liability. Those tactics will not work here .”

Remember when I said corporate law could be exciting?

What are the ways a company can acquire another company?

This is one of the most common questions in law firm commercial interviews.

There are two ways to acquire a company. A company can buy the shares of a target company in a share purchase or buy particular assets (and liabilities) in an asset purchase.

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Share Purchase

In a share purchase, the acquirer buys a majority of shares in the target company and therefore becomes its new owner . This means all of the company’s assets and liabilities transfer automatically, so, usually, there’s no need to worry about securing consent from third parties or transferring contracts separately. This is great because the business can continue without disruption and the transition is fairly seamless.

However, as the liabilities of a company also transfer in share purchase, it’s important the acquirer investigates the target really well. It’ll also want to try protect itself from known risks when negotiating the acquisition agreement.

For example, suppose three months after the acquisition has completed, a former employee brings an unfair dismissal claim against the acquirer. If this was something they had known about pre-acquisition, they’ll want to be indemnified for those costs (we’ll come back to this later).

Conversely, if they didn’t know about it at the time of the acquisition and they didn’t protect themselves in the acquisition agreement, they’ll have to pay out. That’s one of the risks of doing a share purchase. (Although as we’ll discuss later, there are certain things you can do to reduce the risks of this happening.)

Asset Purchase

We call this an asset purchase . It means that the acquirer identifies the specific assets and liabilities it wants to buy from the target and leaves everything else behind. That’s great because the acquirer will know exactly what it’s getting and there’s little risk of hidden liabilities.

However, asset purchases are less common and can be difficult to execute. Unlike share purchases, assets don’t transfer automatically, so the acquirer may have to renegotiate contracts or seek consent from third parties to proceed with the acquisition.

Preliminary Agreements

Confidentiality agreements.

Before negotiations begin, the target company will want the acquirer to sign a confidentiality agreement or a non-disclosure agreement.

This is important because the seller will provide the acquirer with access to private information during the due diligence process. Suppose the acquirer decided not to proceed with the acquisition and there was no confidentiality agreement in place; the acquirer could use this information to poach staff, better compete with the target or reveal damaging information to the public.

So, lawyers for the acquirer and the target company will negotiate the confidentiality agreement. They’ll decide what counts as confidential, what happens to information if the acquisition doesn’t complete, as well as any instances where confidential information can be passed on without breaching the contract.

Exclusivity Agreements

If an acquirer is dead set on buying a particular target company then, in an ideal situation, it will want to be the only one negotiating with that company. This would give the acquirer time to conduct due diligence and negotiate on price, without pressure from competitors. It also ensures secrecy.

If the acquirer has some bargaining power, it may try to sign an exclusivity agreement with the target company. This would ensure, for a period of time, the target company does not discuss the acquisition with third parties or seek out other offers.

While it’s unclear whether an exclusivity agreement was actually signed, Amazon was clear during early negotiations with Whole Foods that it wasn’t interested in a “multiparty sale process ” and warned it would walk if rumours started circulating. That was effective: Whole Foods chose not to entertain the four private equity firms who’d expressed interest in buying the company.

Heads of Terms

The first serious step will be the negotiation of the Heads of Terms (also called the Letter of Intent) between the lawyers, on behalf of the parties. This document details the main commercial and legal terms that have been agreed between the parties, including the structure of the deal, the price, the conditions for signing and the date of completion. It’s not legally binding – so the acquirer won’t have to buy and the target company won’t have to sell if the deal doesn’t go through – but it serves as a record of early negotiations and a guideline for the main acquisition document.

Due Diligence

An acquirer can’t determine whether it should buy a target without detailed information about its legal, financial and commercial position. The process of investigating, verifying and reviewing this information is called due diligence.

The due diligence process helps the acquirer to value the target. It’s an attempt at better understanding the target company, quantifying synergies and determining whether an acquisition makes financial sense.

Due diligence also reveals the risks of an acquisition. The acquirer can examine potential liabilities, from customer complaints to litigation claims or scandals. This is important because underlying the process of due diligence is the principle of  caveat emptor , which means “let the buyer beware”. This legal principle means it’s up to the buyer to fully investigate the company before entering into an agreement. In other words, if the buyer failed to discover something during due diligence, it’s their problem. There’s no remedy after the acquisition agreement is signed.

So if the problems uncovered during the due diligence process are substantial, the acquirer may decide to walk away. Alternatively, it could use this information to negotiate down the price or include terms to protect itself in the main acquisition document.

In an asset purchase, due diligence is also an opportunity to identify all the consents and approvals the buyer needs to acquire the company.

Due Diligence Teams

The acquirer will assemble a team of advisers, including bankers, accountants and lawyers, to manage the due diligence process. The form and scope of the review will depend on the nature of the acquisition. For example, an experienced private equity firm is likely to need less guidance than a start-up’s first acquisition. Likewise, a full due diligence process may not be appropriate for a struggling company that needs to be sold quickly.

Due diligence isn’t cheap, but missing information can be devastating. In a Merger Market  survey , 88% of respondents said insufficient due diligence was the most common reason M&A deals failed. HP had to write off $8.8 billion after its acquisition of Autonomy – which was criticised for being a result of HP’s ‘ faulty due  diligence ‘. Few also looked into organisational compatibility in the merger between AOL and Time Warner, which led to the “ biggest mistake in corporate history ”, according to Jeff Bewkes, chief executive of Time Warner. In 2000, Time Warner had a market value of $160 billion. In 2009, it was worth $36 billion.

Types of Due Diligence

Financial due diligence  This involves assessing the target company’s finances to determine its health and future performance.

Business due diligence  This involves evaluating strategic and commercial issues, including the market, competitors, customers and the target company’s strategy.

Legal Due Diligence

Legal due diligence is the process of assessing the legal risks of an acquisition. By understanding the legal risks of an acquisition, the acquirer can determine whether to proceed and on what terms.

The acquirer’s lawyers have a few ways of obtaining information for their due diligence report. They’ll prepare a questionnaire for the seller to complete and request a variety of documents. This will all be stored in a virtual ‘data room’ for all parties to access. They may also undertake company, insolvency, intellectual property and property searches, interview management and, if appropriate, undertake on-site visits.

Law firms tend to have a system to manage the flow of information and trainees are often very involved. They’ll review, under supervision, much of the documentation and flag up potential risks.

Legal due diligence reports are typically on an ‘exceptions’ basis. This means they’ll flag to the client only the material issues. You can see why this is valuable to the client; rather than raising every possible issue, they’ll apply their commercial judgement to inform the clients about the most important issues.

The report will propose recommendations on how to handle each identified issue. This may include: reducing the price, including a term in the agreement or seeking requests for more information. If the issue is significant, lawyers will want to tell their client immediately, especially if what they find is very serious.

Note, due diligence is a popular topic for interviews. You may be asked to recommend possible solutions to issues uncovered during the due diligence process or asked to discuss the issues that different departments may consider (see examples below).

What are lawyers looking for during due diligence?

What might corporate investigate.

The group structure of the target, including the operations of any parent companies or subsidiaries

The company’s constitution, board resolutions, director appointments and resignations, and shareholder agreements.

Important details from Insolvency and Companies House searches

Copies of contracts for suppliers, distributors, licences, agencies and customers.

Termination or notification provisions in contracts

What do they want to know?

Whether shareholders can transfer their shares (share purchase)

Whether shareholders need to approve the sale and the various voting powers of shareholders

Any change of control provisions in contracts

Whether the target can transfer assets (asset purchase)

Any outstanding director loans, director disqualifications, or conflicts of interest

What might Finance investigate?

Existing borrowing arrangements including loan documents and any guarantees

Correspondence with lenders and creditors

Share capital, allocation and employee share schemes

Assets and financial accounts

The company’s ability to pay current and future debts

Any prior loan defaults, credit issues or court judgements

Details of ownership and title to the assets

Any liabilities which could limit the performance of the target

Whether borrowing would breach existing loan terms

Whether the loan agreements have any change of control clauses

Whether security has been granted over the target’s assets to lenders

What might Litigation investigate?

Details of any past, current or pending litigation

Disputes between the company, employees or directors

Regulatory and compliance certificates

Any judgements made against the company

Insurance policies

The risk of outstanding or future claims against the company

Details of any regulatory or compliance investigations

Potential issues or threatened litigation from customers, employees or suppliers in the past five years

What might Property investigate?

Documents relating to freehold and leasehold interests

Inspections, site visits, surveyors and search reports

Health and safety certificates and building regulation compliance

Leases and licences granted to third parties

Whether the property will be used or sold

Property liabilities

Title ownership and lease/licensing terms

The value of the properties

Details of regulatory compliance

What might Employment investigate?

Director and employee details, and service contracts

Pension schemes and employee share schemes

Pay, benefits and HR policy information

Information in relation to redundancies, dismissals or litigation

Plans to retain key managers, redundancy and compensation

Pension scheme deficits

Termination or change of control provisions

Compliance with employment law and consultation

Risks of dismissal claims

Evaluate post-acquisition integration

What might Intellectual Property investigate?

List of any trademarks, copyright, patents, domain names and any other registered intellectual property

Registration documents and licencing agreements

Litigation and related correspondence

Searches at the Intellectual Property Office

Current or potential disputes, claims of threatened litigation in relation to infringement

Whether the seller has renewed trademarks

Who has ownership of the intellectual property

Whether they can transfer licenses and gain consents

Details of critical assets, confidentiality provisions and trade secrets

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The Acquisition Agreement

The main legal document is the sale and purchase agreement or “SPA”. It sets out what the acquirer is buying, the purchase price and the key terms of the transaction.

Purchase Price

A company will usually pay for an acquisition in cash, shares, or a combination of the two.

Cash is a good option if an acquirer is confident in the acquisition. If it believes the shares are going to increase in value (thanks to synergies), paying in cash means it can soak up the benefits without having to give up ownership of the company. It is, however, expensive to pay in cash. The buyer must raise money if it doesn’t already have enough cash reserves by issuing shares or borrowing.  Most sellers also want cash. It means they’ll know exactly how much they’re getting and don’t have to worry about the future performance of a company.

Other times, an acquirer will want to use shares to pay for an acquisition. The target’s shareholders will get a stake in the acquirer in return for selling their shares. If the value of the acquirer’s shares increases, the shareholders may get a better return. Often, this option will be more attractive for an acquirer as it doesn’t use up cash. Receiving shares can also be valuable for the seller if they’re gaining shares in a promising company. Conversely, however, they must bear the risk that the value of the acquirer falls.

Key terms of the transaction

Both parties will make assurances to each other in the form of terms in the SPA. These terms are heavily negotiated between lawyers.

Warranties and representations

Warranties are statements of fact about the state of the target company or particular assets or liabilities. For example, the seller may warrant that the target isn’t involved in any litigation, that its accounts are up to date and that there are no issues with its properties. If these warranties turn out to be false, the acquirer may claim for damages. However, there are limitations: the acquirer will have to show that the breach reduced the value of the business and that can be hard to prove.

During negotiations, the seller will try to limit the scope of the warranties. It’ll also prepare a disclosure letter to qualify each warranty. For example, the seller may qualify the above warranty with a list of outstanding litigation claims. If the seller discloses against a warranty, they won’t be liable for a breach. Disclosure is also useful for the acquirer because it may reveal information that was not found during due diligence.

The acquirer will want some of these statements to be representations. Representations are statements which induce the acquirer to enter into a contract. If these are false, the acquirer could have a claim for misrepresentation. That could give the acquirer a stronger remedy, including termination of the contract or a bigger claim for damages. This is why the seller will usually resist giving representations.

Indemnities

Indemnities are promises to compensate a party for identified costs or losses. This is appropriate because the acquirer may identify potential risks during due diligence; for example, the risk of an unfair dismissal claim or a litigation suit. The acquirer can seek indemnities to be compensated for these particular liabilities arising in the future. This is a way to allocate risks to the seller: if the event occurs the acquirer will be reimbursed by the seller.

Conditions Precedent

The SPA may be signed subject to the satisfaction of the conditions precedent or “CPs”. These are conditions that must be fulfilled before the acquisition can complete. That could mean, for example, securing consent from third parties, shareholder approval or merger clearance. Trainees are often responsible for keeping track of the conditions precedent checklist, and they’ll need to chase parties for the approvals to ensure all conditions are satisfied.[divider height=”30″ style=”default” line=”default” themecolor=”1″]

Signing and Completion

This is the big day. Signing can take place in person or virtually. Each party will return the SPA with their signature in accordance with the relevant guidelines. It’ll be the trainees responsibility to check that the SPA has been signed correctly and to collate the documents.

Final Thoughts

If you’re reading this to prepare for an interview, I’d suggest you explore the “acquisition structure”, “legal due diligence” and “warranties and indemnities” sections – these are common case-study questions. We cover this in more detail and with practice interview answers in our mergers and acquisitions course, which is free for TCLA Premium members.

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