What is the M&A process?
The M&A (mergers and acquisitions) process is a series of steps which are typically followed in order to complete the sale and purchase of the assets or shares of a business, often called the 'Target'. The buyer looks to purchasing the Target at the best possible price whilst the seller is also looks to maximizing the best price it can get.
Regulatory Laws
The main laws and regulations governing Mergers and Acquisitions of private companies and publicly listed companies are:
- the Companies Act, 2019 (Act 992) which is the primary legislation governing such mergers and acquisitions in Ghana;
- the Securities Industry Act, 2016 (Act 929) (the Securities Industry Law),
- the Securities and Exchange Commission Regulations 2003 (LI 1728),
- the Securities and Exchange Commission Takeovers and Mergers Code (the Takeovers Code),
- the Central Securities Depository Act 2007 (Act 733),
NB: For Private companies, the only applicable law is the Companies Act, 2019 (Act 992)
Also, specific sectoral legislations regulate Mergers and Acquisitions in those industries. These include, but not limited to the following:
- Banking " Insurance
- Petroleum " Communication
- Mining
The Seven Steps in Mergers and Acquisitions
Step 1: Strategic planning, Target identification and Initial research
The first step is to identify the Target (or potential buyers, if you are selling) and start exploring whether the Target would be a good fit for the existing business - identifying any synergies between the businesses and thinking about what changes may be necessary to complete a successful integration. Consideration should be given to any consents or clearances which may be necessary during the process and whether obtaining these would be feasible within any agreed timeframes.
Step 2: The Offer
Letter of intent (LOI)/term sheet
If everything looks good after the first step, then the second step is to agree on the key terms of the deal. For example, structure, timing, price and conditions of the deal. These will typically be set out in a 'letter of intent' (also called a 'term sheet', 'heads of terms' or 'heads of agreement') which is not intended to be legally binding apart from certain provisions such as an exclusivity clause. Exclusivity clauses restrict the target from being in discussions with any other potential buyer for an agreed period.
Non-disclosure agreements/confidentiality agreements (NDAs)
Confidentiality agreements or non-disclosure agreements should also be put in place at this stage before disclosing any sensitive business information to interested buyers. Confidentiality provisions are often legally binding terms in the Heads.
Step 3: Due Diligence
The next step is the due diligence process, which is an information-gathering exercise performed by the buyer on the Target. The aim of the exercise is to allow the buyer to elicit sufficient details about the Target in order to reassure the buyer that the acquisition should go ahead and that the terms of the deal make commercial sense. If any major issues are brought to light during the due diligence exercise, then there may need to be a renegotiation of the price or certain indemnities and/or conditions included in the acquisition agreement.
Step 4: The Draft
Often called 'the legals', this step involves the parties' lawyers drafting and negotiating the terms of the transaction documents. This is the main document being a Sale and Purchase Agreement (SPA) containing the terms of the deal agreed between the parties, based on the Heads and any adjustments required due to things arising in the due diligence process.
The SPA will ordinarily contain warranties, and in respect of concerns revealed in the due diligence process indemnities, to give contractual protections to the buyer. These usually take up a lot of time in negotiations as the sellers will be keen to limit their exposure under the agreement while the buyers will want the maximum protection from any liability arising post-completion relating to the period before completion.
Both seller and buyer will need to get heavily involved in agreeing to the terms of the SPA and other transaction documents. People often underestimate the time this will take from their daily operations in their business.
Step 5: Completion (Closing the deal)
The closing stage or completion of a transaction requires a great deal of planning and organization to ensure all the necessary paperwork is agreed upon and ready to be signed on both sides. This is where teams of M&A lawyers will be liaising to make sure all goes smoothly. The signing is done by both parties and each is given a counterpart of the agreement.
Step 6: Post-closing and Post-merger integration
There are usually a number of matters to be completed by the parties and their legal teams post-closing. This could be filings at the Office of the Registrar of Companies, paying stamp duty on shares or issuing notices to customers and suppliers.
Once the deal has been closed, the hard work of post-merger integration can begin. Ensuring you have a plan for this integration from the very start will go a long way to making the integration smoother and easier for all involved. It is crucial to build trust with the Target's employees, customers, suppliers and so on. This process should have started with the sellers during the negotiation stage and can be reinforced by ensuring communication is transparent to avoid rumours and cynicism. Even though the sellers may not stay involved with the business, it would be helpful to have them on your side if needed post-closing.
Step 7: Monitoring and Evaluation
Post-acquisition audits are a tool used by many businesses to monitor the success of an acquisition. It typically involves a review of the M&A process and an assessment of the success of the integration. Monitoring of the warranties and indemnities and any other continuing terms of the acquisition agreement is also important so that any potential claims can be assessed and any obligation deadlines met.
Conclusion
The M&A process can be very lengthy and involving which is why it is important to recognize the distinct steps. This should help with your preparation at the start of the process to ensure you achieve a successful acquisition and integration. Its advisable to always consult legal and financial advisors to help maneuver the process seamlessly.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.