Mergers and acquisitions occur when the ownership of businesses is transferred or combined. A merger occurs when two or more separate companies combine to form a new company, while an acquisition occurs when one company buys or acquires another company.
A merger or acquisition generally occurs in two (2) ways:
- By way of the shareholders of each company voting to merge with the other; or
- By way of a company making an offer to the shareholders of another company to purchase their shares.
For companies traded on a stock exchange, it is also for a company to purchase the number of shares to takeover the company on the market, but this is rarely done in practice.
Mergers and acquisitions involving a private company can be more difficult, as Company Constitutions or Shareholder Agreements can often restrict the sale or transfer of shares.
Restrictions can include:
- The power of the company board to refuse to register a transfer;
- Giving current shareholders the right of first refusal to purchase the shares;
- Refusing to allow transfers that result in a change of control of the company, for example 50% of the voting rights of the entire company.
Mergers and acquisitions are heavily regulated to ensure that if it goes ahead, it will not give the company a monopoly in their market area, or significantly lessen competition in that area. This is particularly important if two large companies are seeking to merge, or the companies’ market is already a niche area with few competitors.
Regulation is undertaken by a number of bodies, including:
- The Australian Securities and Investment Commission (ASIC);
- The Australian Competition and Consumer Commission (ACCC);
- The Australian Securities Exchange (ASX); and
- The Foreign Investment Review Board.
If a proposed merger or acquisition is considered to result in competition being significantly reduced, then it may be blocked and not allowed to proceed. Mergers or acquisitions involving a foreign entity are also subject to additional review from the Foreign Investment Review Board.
What advice do you need?
Mergers and acquisition are complex and it is highly recommended that advice be sought from a range of professions, including:
- Legal advisors;
- Business accountants;
- Taxation accountants; and
- Financial advisors
Given the range of advice that needs to be provided, the merger or acquisition of a company can be a very costly process.
If you would like more information or advice on mergers and acquisitions please do not hesitate to get in touch with us.