AHLAWAT & ASSOCIATES ADVOCATES
AHLAWAT & ASSOCIATES ADVOCATES
6 Issues in M&A transactions
AHLAWAT & ASSOCIATES ADVOCATES
Let’s take a look at the major issues that organizations need to avoid for a successful M&A transaction.
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Issue 1 – Unsuitable Deal Structure One of the biggest issues that cause a difference of opinion is the transfer of liability. In case of a stock purchase, complete liabilities are transferred to the acquirer. In a merger, the surviving entity has to take responsibility for the liabilities but in an asset sale, only specifically assigned liabilities are passed on to the buyer.
AHLAWAT & ASSOCIATES ADVOCATES
Issue 2 – Failure To Agree On The Final Price Another common issue that can arise is differences over the final price of the target company. The method used to assess the worth of a business becomes important in such cases.
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Issue – 3 Mode Of Payment The method of payment used for settling the deal can also be a potential cause for an issue. The easiest way to make payment is through cash. Sellers prefer this method as least risk is associated with it but it can affect the acquirer’s capital structure or debt rating.
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Issue – 4 Disagreement on Escrow Details A part of the total purchase price amount is held in an escrow to protect buyers from losses occurring due to the breach of representation and warranties by the seller.
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Issue 5 – Terms of Seller Representation and Warranties One of the major issues in M&A transactions is caused by differences over the framing of representations and warranties.
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Issue 6 – Differences Over Indemnification Provisions The conditions put in the document which will have to be fulfilled by sellers on breach of representations, warranties or other terms can significantly reduce their returns from the sale. While buyers want the scope of the indemnification to be wide and go beyond representations and warranties, sellers want it to be limited in scope as well as duration.
AHLAWAT & ASSOCIATES ADVOCATES
Conclusion Best way to avoid issues in M&A transactions is to engage Mergers and acquisitions lawyers who have considerable experience in assisting business organizations to successfully close such complex deals.
Resource: https://blog.ipleaders.in/6-issues-matransactions-can-derail-deal/
AHLAWAT & ASSOCIATES ADVOCATES
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