Exit planning for UK businesses: The legal implications of mergers and acquisitions

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The UK’s decision to leave the EU has led to uncertainty for many UK businesses and the outlook remains unclear because of the continued uncertainty over the type of ‘Brexit’. Some businesses are already moving operations abroad while it has led to others, particularly small to medium-sized enterprises (SME’s), to re-think their strategy

If you run an SME and are considering your UK business exit strategy in light of ‘Brexit’, have you thought about whether a merger or acquisition is a strategy that may assist your business to grow or develop? Here at Warners Solicitors, we are working with our clients to help them through the challenges they face and advise them on the execution of mergers and acquisitions. This article explains what is involved in a merger or acquisition.

What does a merger and acquisition involve?

Put simply, a merger is the consolidation of two businesses into one by either combining the businesses with a single new form of legal entity or by one business taking control of the other. In the case of an acquisition, this is where one company purchases a portion or all of another company’s shares or assets. Often mergers and acquisitions are confused because the results can be fairly similar.

When considering an acquisition, there are two primary ways to structure the transaction:

  1. If the business you are looking to acquire is a limited company, you can buy a portion or the entire share capital of the company (this is known as a share purchase). You as the buyer will acquire the company including all assets and liabilities.
  2. f the business you are looking to acquire is a sole trader, partnership or LLP or the limited company has a number of liabilities that you would like to avoid, you could purchase the individual assets (this is known as an asset purchase). You as the buyer agree to purchase certain assets and liabilities and only these are sold. The rest remain with the seller or the seller’s company.

When considering a merger, the two structures detailed above can be used. The structure of the merger will often be dictated by the tax and accountancy advice and whether the businesses will be transferred to a single new entity or whether the one business takes the other over.

While both options present clear commercial opportunities, it is important to consider the legal implications and take the appropriate accountancy and tax advice over which option is best for your business. The deal must also be structured with maximum tax efficiency in mind. Mergers and acquisitions raise complex tax considerations which vary depending on the preferred structure of the deal.

Why you need specialist legal advice

When considering a merger or acquisition, take advice from a specialist corporate law solicitor to ensure your business interests are protected. The legal expertise you need may include:

  1. assistance with the preparation of heads of terms;
  2. due diligence: carrying out appropriate checks and investigations to establish the true financial worth of the other company, its ownership, debts and liabilities, etc. before you can proceed;
  3. negotiating and drafting the necessary legal documentation and agreements;
  4. corporate law requirements: ensuing company decisions about the merger or acquisition are validly made in accordance with company law requirements and the necessary ancillary documentation is in place;
  5. post-completion arrangements: finalising appropriate registrations, share transfer forms etc; and
  6. post-completion restructuring arrangements: updating terms and conditions or policies and procedures, amending contracts of employment, amending the company’s articles of association or the preparation of shareholders’ agreement dealing with new shareholdings and share structure and detailing the arrangements between the parties.

What you need to do now

Expert legal support and advice is vital to help pre-empt any potential problems.

For further information, please contact Jonathan Booton in the corporate, commercial law and IP team on 01732 770660 or email j.booton@warners.law. Warners Solicitors has offices in Tonbridge and Sevenoaks, Kent.

This article is for general information only and does not constitute legal or professional advice. Please note that the law may have changed since this article was published.

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