Key milestones for M&A transactions

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A question was posed on a M&A transaction I was working on.

Can the sale and purchase agreement be completed soon after the legal due diligence on the target company is completed?

The short answer is “It depends”.

There are things which are within lawyers’ control such as when draft SPA can be made available to the relevant parties for comments.

However, there are also things which are out of lawyers’ control such as the timing for obtaining approvals from third parties such as banks and authorities if such approvals are required to complete the sale and purchase.

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The following are the key milestones for M&A transaction

• Due diligence

A seller may allow a buyer and its advisers to conduct due diligence on the target company or target asset up to a cut-off date. This is the process of finding out whether there is any major issue which may affect the M&A transaction or the buyer’s decision to acquire the shares of the target company or target asset.

• Negotiation and execution of SPA

The seller and purchaser negotiate the terms of the SPA. If there are major issues found during the course of due diligence, the buyer may require the seller to resolve the issues before execution of the SPA. Alternatively, the buyer may want to include certain clauses in the SPA to protect the buyer’s interest.

If the parties are corporations, resolutions are required to authorise the SPA execution on behalf of the corporations.

If a public listed company (PLC) or its subsidiary is party to the SPA, announcement to the stock exchange may be required.

• Fulfilment of conditions precedent

The parties to the SPA show that they have met the conditions precedent within the agreed period. The SPA becomes unconditional at this point.

• Completion of the SPA

SPAs typically provide for certain actions to be done or documents to be delivered to the counterparties on completion e.g. delivery of share transfer form against payment. A PLC may need to announce the SPA completion to the relevant stock exchange.

• Post completion obligations

SPAs may provide for post-completion actions such as notifying the relevant authorities of change of shareholders of the target companies.

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This post was first posted on Linkedin on 29 October 2021.

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