Mergers & Acquisitions allow businesses to achieve efficiencies and diversify risk across a range of activities. However, the Competition and Consumer Act 2010 (Cth) (‘the Act’) prohibits mergers that would have the effect of substantially lessening competition in the market.
Parties who wish to merge are not legally required to notify the ACCC of a merger and have the option of proceeding with the merger without any regulatory consideration. However, whether firms agree to a merger, or whether some firms are attempting to complete an acquisition of another firm, it is always important to determine the exact manner in which the merger or acquisition will occur. Quite often, there will be a disparity in the bargaining power of the firms, so it is important to determine what your rights are or what should be deemed to be reasonable when engaging in the merger or acquisition process.
Considerations when negotiating
There are several considerations one must look at when first choosing to engage in a merger or acquisition:
Preparation and Research
If you are looking to merge or acquire a business, it is important to look at the market and sales trends of the particular business. Furthermore, you will need to also gauge the position of the other party, such as what their interests are in the merger or acquisition, what price point you are willing to negotiate, and what concessions you are willing to make to ensure the merger or acquisition is successful.
Although there is more to negotiation than price, it is nonetheless a driving point to closing the deal. It is always advisable to make the first offer in a negotiation, as this becomes the foundation to which subsequent offers will be made. Thorough preparation and research would allow you to prepare an offer that places you in a relatively strong position.
Other considerations when negotiating a merger or acquisition can include:
- Business structure – what level of control will each party have in the merger? Will anyone remain in their current employment?
- Terms – determine what it is that each business is looking to achieve out of the merger or acquisition. Furthermore, ensure that there are protections in place if issues arise with the transaction.
When making offers, ensure that you are aware of your “BATNA” (Best Alternative to a negotiated agreement) or “WATNA” (Worst Alternative to a negotiated agreement).
An important part of negotiation is knowing when and how to make concessions. Many mergers and acquisitions fail because one party is not willing to make concessions, making the other party feel unappreciated within the transaction.
Don’t be afraid to request that the other party make concessions. In fact, when negotiating in mergers and acquisitions, you may want to openly state the concessions you are making as a matter of transparency. This may encourage the other party to make concessions if they explicitly know what concessions you are making. You do not need to make your concessions all at once, and it is good strategy to make your concessions slowly over the course of negotiations.
Another strategy of making concessions is having them contingent on certain conditions being met. Do not rely on this too much, as the overall goal is to build trust in the transaction.
If you are concerned about possible competition issues that may arise if a merger was completed, then there are two (2) processes you may wish to undertake:
- Informal merger review – allows the parties to approach the ACCC to obtain their view prior to the completion of a merger.
- Merger authorisation – section 50 of the Act allows the parties to seek statutory protection from legal action through an application for merger authorisation. If approved, it will allow firms to acquire shares or assets without ACCC or third-party intervention.
The legal framework is encompassed in the following ways:
- Merger Agreement – the formal document between the parties that outlines the terms of the merger or acquisition. This includes business and share structure, price, warranties, protections, and any other specific terms the parties have agreed to.
- Due diligence – whilst forming part of the merger agreement, it is important that all directors have discharged their obligations under sections 181-183 of the Corporations Act 2001 (Cth). Due diligence occurs throughout the whole negotiation process, so it is important that directors perform the necessary research that ensures a positive outcome in the transaction.
How can we help?
At JB Solicitors, we can assist you in negotiating throughout the merger or acquisition transaction. We are also able to prepare your agreement and determine what we believe to be a fair agreement. Contact JB Solicitors today so that we may assist.