Acquisitions & Agreement Negotiation
Mergers & Acquisitions
The firm has a robust mergers and acquisitions (“M&A”) practice, mostly representing foreign companies acquiring U.S.-based targets. M&As are generally strategic in nature involving either acquisition of a competitor offering the same goods/services or acquisition of a non-competitor offering complementary goods/services. They are also strategic in the sense that it is a method of entry into the U.S. market that provides immediate access to a work force (including a sales team), customer base, intellectual property, offices, manufacturing sites, inventory, and distribution chain, all of which take significant time to develop in alternative methods of entry.
An acquisition can be the fastest and, surprisingly, least expensive means of entering the U.S. market.
The following list provides a glimpse into some of the issues that will need to be addressed as part of the acquisition. These issues are extremely complex and require careful consideration and extensive negotiation. Accordingly, it is critical to get a U.S. lawyer involved at an early stage of discussions. Some of the documents we help our clients draft and negotiate, and that customarily form a part of an acquisition, include:
– A Confidentiality Agreement which should be negotiated and executed before any confidential, proprietary, or sensitive materials or information are exchanged.
– A non-binding Letter of Intent that expresses the party’s intentions to complete the transaction, listing the major terms of the acquisition and preferably with provisions that grant the acquirer some exclusive negotiating rights over a specified term. In fact, recent deals include a Letter of Intent that looks more like the Asset Purchase Agreement or Stock Purchase Agreement.
– An Asset Purchase Agreement or Stock Purchase Agreement, that builds on the Letter of Intent and includes detailed provisions related to the purchase price and payment thereof, representations and warranties, a detailed covenant not to compete, indemnification, and disclosure schedules, among others.
While negotiating the Asset Purchase Agreement/Stock Purchase Agreement, the acquirer will need to engage in due diligence by requesting documents and information of the target company. Due diligence is performed so the acquirer knows exactly what it is acquiring, with an understanding of the consequences of each part of the acquisition in terms of liability. The firm’s extensive experience in M&As allows us to review due diligence documents and information and assess the associated liability for our clients. We then help the client reduce that liability through strategic negotiation of the Asset Purchase Agreement/Stock Purchase Agreement.
Under normal circumstances, gaining access to key employees is of greatest value to the acquirer. Make sure to negotiate employment agreements with those that are key for the future, in advance of closing on the acquisition.
A major practice area of the firm for over three decades has been the drafting and negotiating of commercial contracts. The firm prides itself on protecting our client’s interests and counseling our clients on issues about which they were previously unaware. Often, companies attempt to draft their own contracts or use already existing contracts based on a foreign country’s law but get into trouble when they omit crucial legal provisions because they are simply unaware of the need to negotiate such provisions. That is where we can add substantial value for our clients.
There is very little, if any, statutory law in the U.S. relating to contractual relations. That is one reason why contracts in the U.S. are necessarily longer than in foreign countries where there is a civil code.
Companies may also not see the importance of having a written contract when doing business in the U.S. In many countries, it is not unusual to do business on a “handshake deal” because there is a level of trust when doing business in those countries that may not necessarily translate to the U.S. The problem with handshake deals is when a dispute arises (which they often do in the U.S.) there is no contract to show a judge. In that case, the judge must determine who prevails at trial based on who is the more credible witness (i.e., who looks like they are telling the truth about the oral contract). To have a multi-million-dollar dispute decided in such a way is extremely unfortunate. That is why we almost universally recommend having a written contract.
Focus is placed on retaining control (information) and flexibility (simple and straightforward termination rights), rather than agreements that may promise gold at the end of the rainbow, but ultimately are unrealistic. Creating win-win situations for the parties is the optimal result.
Clients are sometimes advised to not enter into agreements based on the onerous terms proposed by the other side; or because the client simply does not have the resources to effectively manage the relationship. Other times, when clients seek “airtight” agreements because they do not trust the other side, they are counseled to walk away from such a deal. Written agreements cannot, by themselves, create the atmosphere of trust and collaboration that is the most essential cornerstone to a successful relationship.