Our team of specialist Corporate Solicitors provide advice to a broad range of clients including PLCs, SMEs, owner-managed businesses, management teams, private equity investors and serial entrepreneurs on all aspects of mergers and acquisitions (M&A).
Structure of a Merger
A merger may be structured in a variety of ways, but typically:
- Under a merger by transfer of shares, the shareholders of two or more companies transfer their shares to a new holding company formed for the purpose, in consideration for the issue of shares in the new holding company (see Acquisitions and disposal of shares); or
- Under a merger by transfer of assets, two or more companies transfer their respective undertakings and assets to one of their number or to a new company formed for the purpose, in consideration of the issue of shares to the transferor company(ies) (see Acquisitions and disposal of assets).
Key Features of a Merger
A key feature of a merger transaction will be the basis upon which the shareholders work together and manage the combined business moving forward. These arrangements will be documented in a shareholders’ agreement and new articles of association for the new venture. Such arrangements will vary considerably from case to case, but some of the more important areas to be considered are as follows:
- The object and scope of the venture;
- The capitalisation and financing of the company;
- The composition of the board and management arrangements;
- Distribution of profits;
- Transferability of shares in different circumstances;
- How intellectual property is to be owned and exploited;
- Provisions for protecting the minority (if any);
- Resolving a deadlock in relation to decision-making;
- Exit of shareholders; and
- Restrictive covenants on the company and the shareholders.
Prior to a merger, the participating companies are usually either carrying on the same kind of business in competition with one another or are engaged in businesses which are complementary (such as manufacturing and marketing the same range of products).
After the merger, any competition between the merging companies ceases. Consequently, a merger may raise complications regarding competition law, although in some cases the effect of the merger may not be significant because the participating businesses possess only a small share of the relevant market.