By: José Adolfo Torres
The acquisition of companies is a professional activity, generally requested by our law firm by those clients who know our reputation based on the experience of over 30 years of practice. This activity is organized according to the size of the operation to be executed, with a team led by a merger and acquisition advisor, one or several financial advisors, accountants, and of course lawyers whose disciplines of formation must be of varied knowledge.
Recently, I participated as Head of LatinAlliance in the team to advise the shareholders of an important company with operations in Central America. The team consisted of approximately 10 lawyers whose specialties were in the corporate, labor, tax, and finance area, the whole process took almost a year.
We started by listening to our client and determining the scope of the business, their objectives, who the other party was, what activities they performed, etc., to be able to understand perfectly what had to be carried out, and thus empower ourselves with the instructions received. I have always considered of paramount importance in merger and acquisition processes to understand the business that the parties have discussed, as it will facilitate all the actions that the lawyers in the transaction have to face and take.
I give this advice to my team so that we are all perfectly aligned and facilitators of the objectives that the client seeks. If the client’s legal team is empowered, it will allow each in their role to flow with great efficiency and professionally connect with the party that hired them and constitute a strong team in front of the other party, which without a doubt will seek to be advised by another team of reputable professionals.
Having understood the business that the parties want to achieve, we set out to structure a letter of intent, commonly known as a memorandum of understanding (MOU), whose purpose was to regulate the terms and conditions by which the acquisition of the companies was sought, as well as establish the agreements that allow the intention of the parts to be concretized, without constituting in any way an obligation for each party to sell or buy at that stage. At the same time, we signed a confidentiality and non-competition agreement to protect our client from any inappropriate use of sensitive information that was going to exchange with the other party and to restrict any similar activity that could be carried out in the short term, privileging the use of that information for their own benefit, in case the business was not carried out.
In the MOU we made clear the object of the business, its scope, and an equivalent price to a multiple of a number of times EBITDA. To reach this value, previously the parties had approached their financial teams to have the knowledge, through financial statements, of the target company and thus estimate whether there was appetite on the buyer’s side to make such an investment.
We made it clear the need to present audited financial statements on certain dates and carry out the Due Diligence of each target company (Due Diligence) to evaluate the legal, financial, accounting, operational and other conditions of the companies subject to purchase. In all this, we set dates to carry out each activity for it to serve as a roadmap for the process to be efficient and successful. Once the Due Diligence was completed, we signed a binding agreement and set conditions and times to be able to sign a share purchase agreement.
After a significant time period of discussing the results of the Due Diligence, the parties sat down to negotiate all the terms and conditions that would be included in the company purchase agreement. This meant a task of many hours of work and a communication capacity that allowed building a legal document that satisfied both parties. In this type of document is usually made: a historical summary of what has intervened in the process; the representation of each party involved on its capacity to contract; a glossary of definitions that allows establishing the meaning of each word adhoc to the type or class of business that is being carried out; the final price of the agreed and its payment form; we established dates for signing the agreement and closing date of the sale subject to compliance with perfection conditions and the state of the companies subject to purchase; conditions to adjust the selling price in case of occurrence; deliverable documents, pre-closing conditions; guarantees of the seller and the buyer; We recorded the contingencies detected in the Due Diligence and set an escrow account; we established responsibilities for each party in case of non-compliance and a contractual termination clause, finally we set a place to settle contract differences and an arbitration forum to know such differences in case the parties could not find a satisfactory solution.
It is complex to collect or synthesize in a few paragraphs a process as varied, dynamic, and intense as the merger and acquisition activities of companies, but I have tried to reflect that characterization through this small contribution so that the reader can understand that these professional activities must always be in the hands of experts and reputable legal firms.
In LatinAlliance Lawyers Central America, we have over 30 years of working in this area. Over time we have participated in the purchase and sale of Banks, Insurance Companies, and Retail companies, amongst other businesses that have given us the proven capability and experience to accompany clients, both on the seller’s side and the buyer’s side, providing our knowledge to protect their interests. We can assert that our role in each operation has added value to the operation to the benefit of the party that hired us, making available a highly experienced team in different areas, with a capacity for understanding and communication that makes the merger and acquisition processes efficient and dynamic, which will lead to the operation being successful and beneficial for our client.