The Hand of the Law in the Seamless Synergies of the Business World

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Mergers and acquisitions are ever present in the economy, and rightly so, considering the wealth of benefits which come with a successful union of two companies, or a hostile takeover. A complex realm comprising the law, economics and other authoritative interventions from the CMA (Competition and Markets Authority), the often multi-faceted process of a merger or takeover has resulted in many well known successes, such as Disney’s takeover of Pixar and Marvel, as well as failures, like the recent Asda and Sainsbury’s deal which fell through.

Why merge or takeover? The key idea is that two separate entities are better as one. This is because of the idea that owners of both companies will have shared knowledge about the market or even be able to venture into new ones to increase their market share. By diversifying together and having a greater ability to acquire both tangible and intangible assets, the firms are able to grow exponentially, if optimal conditions are present. Economies of scale are another extremely large advantage to companies. All these factors come together to conglomerate in the idea of synergy. Economic agents all work together effectively to allow for efficiency, in turn fuelling productivity and the growth of the firm.

[1] In M&A law, there is an array of individuals who need to be liaised with, including the client, financial advisers and the board of directors of both parties. It is necessary to complete due diligence to ensure all parties have the right funds and that there are no information gaps between the buyer and seller. [2] It finalises the direct ownership of assets, whether one company owes the other any outstanding debts or claims, and if there are any environmental or other liabilities which may reduce the value of the business in the future. Financing is important which could come from investors or institutions to have security for the investment. The lawyer involved must also ensure agreements are drafted and agreed upon by all involved at properly convened board meetings, which are recorded in written documents, signed and witnessed. Furthermore, procedures must be put in place for the after effects of the merger or takeover. 

  • In the global market, the value of M&A deals fell from $2.5 trillion in the first half of 2018 to $2.16 trillion in the first half of 2019. Despite this drop in the overall value of deals in 2019, mega deals were booming with an increase of 40.6% in volume and deal count in the same period of time. The US reached record highs in terms of volume in the first two quarters of 2019, while Latin America and the Caribbean experienced a decline of almost 20% in this time frame. 
  • Brexit caused a large amount of political uncertainty. However, the United Kingdom remains one of the most active markets when it comes to acquisitions, following on from the USA, China and Germany. ‘A report by J.P. Morgan predicted that continued weakness in the pound will probably present opportunities for foreign investors; that said, the number of jobs created by foreign investment fell to 57,625 in 2018-19, the lowest number in the past seven years.’

[3] Just this Wednesday, 10th June 2020, the European food ordering firm Just Eat Takeaway NV announced a $7.3 billion deal to buy U.S food delivery company Grubhub Inc, in order to create the largest food delivery firm outside of China.

M&A law is merely a branch of corporate law which covers an array of legislation to which companies are bound and are able to utilise in order to grow firms.[4] Whether firms are large or small, it has an impact on the duties and permissions that firms are given, and it is important to keep in mind their differing objectives. Firms are separate entities in the law from their directors or shareholders, thus the term liability is derived. The concept of liability is dependent on the type of firm (public or private) – yet the underlying theme is that the law will rarely treat a company as the owner(s) who control it. The key principles in company law come from the consequences of firms being separate legal personalities:

  • ‘A company’s property belongs to it and not to its directors, management or shareholders. Even if you are a sole director and a 100 percent shareholder, you can still be found guilty of stealing from your own company. Liquidators and future owners will have an interest in pursuing claims for theft or misuse of assets where a company has been plundered by those in day-to-day control. Many a corporate swindler has been pursued through the courts for forgetting this basic principle.’
  • ‘A company is responsible for its own debts and liabilities. The shareholders and, as a general rule, directors cannot be forced to pay them.’

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