Farallon Law - Mergers and Acquisitions Lawyer in Singapore

Mergers and Acquisitions

Cinq personnes discutant informellement dans une salle de réunion

An acquisition or takeover is the purchase of one business or company by another company or other business entity. Such purchase may consist of purchasing 100%, or nearly 100%, of the assets or ownership equity of the acquired entity.

Consolidation occurs when two companies combine together to form a new enterprise altogether, and neither of the previous companies remains independently.

Achieving acquisition success has proven to be very difficult, while various studies have shown that 50% of acquisitions were unsuccessful. “Serial acquirers” appear to be more successful with M&A than companies who only make an acquisition occasionally.

“Acquisition” usually refers to a purchase of a smaller firm by a larger one. Sometimes, however, a smaller firm will acquire management control of a larger and/or longer-established company and retain the name of the latter for the post-acquisition combined entity. This is known as a reverse takeover. Another type of acquisition is the reverse merger, a form of transaction that enables a private company to be publicly listed in a relatively short time frame. A reverse merger occurs when a privately held company (often one that has strong prospects and is eager to raise financing) buys a publicly listed shell company, usually one with no business and limited assets.

The combined evidence suggests that the shareholders of acquired firms realize significant positive “abnormal returns” while shareholders of the acquiring company are most likely to experience a negative wealth effect. The overall net effect of M&A transactions appears to be positive: almost all studies report positive returns for the investors in the combined buyer and target firms. This implies that M&A creates economic value, presumably by transferring assets to management teams that operate them more efficiently.

There are also a variety of structures used in securing control over the assets of a company, which have different tax and regulatory implications:

 

  • The buyer buys the shares, and therefore control, of the target company being purchased. Ownership control of the company in turn conveys effective control over the assets of the company, but since the company is acquired intact as a going concern, this form of transaction carries with it all of the liabilities accrued by that business over its past and all of the risks that company faces in its commercial environment.

 

  • The buyer buys the assets of the target company. The cash the target receives from the sell-off is paid back to its shareholders by dividend or through liquidation. This type of transaction leaves the target company as an empty shell, if the buyer buys out the entire assets. A buyer often structures the transaction as an asset purchase to “cherry-pick” the assets that it wants and leave out the assets and liabilities that it does not. This can be particularly important where foreseeable liabilities may include future, unquantified damage awards such as those that could arise from litigation over defective products, employee benefits or terminations, or environmental damage.

 

We can advise on the following matters:

 

  • Preparing a Due Diligence Report on the Target Company
  • Drafting of Offer Letter / Termsheet to Seller Group
  • Drafting of Share Purchase Agreement or Asset Purchase Agreement (as the case may be), In particular:
    • Advising on Conditions Precedent, Conditions Concurrent and Conditions Subsequent
    • Advising on Representations and Warranties
    • Advising on Tax Liabilities
    • Advising on Covenants and Post Completion Obligations
    • Advising on Termination Rights
    • Advising on relevant Board and Shareholders Approval
    • Advising on compliance with the Companies Act (Cap. 50 of Singapore), in particular the whitewash procedures
    • Advising on Purchase Price Adjustments
  • Co-ordinating with Foreign Legal Counsel, Investment Bankers and Financial Advisers, especially for Cross-Border or Multi-jurisdictional M&A transactions
  • Obtaining favourable valuations for the purpose of your role in the M&A transaction. The five most common ways to value a business are:
    • asset valuation;
    • historical earnings valuation;
    • future maintainable earnings valuation;
    • relative valuation (comparable company and comparable transactions); and
    • discounted cash flow (DCF) valuation
  • Issuance of Legal Opinions and Regulatory Advice to the Board of Directors
  • Handling the transfer of the Shares and/or Assets between the Seller and the Buyer
  • Obtaining tax advice for the transfer of Shares and/or Assets between the Seller and the Buyer
  • Advising on Post-Completion Matters