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Abu Dhabi, UAEWednesday 21 November 2018

Closing an M&A deal needs structure for SMEs to succeed

In the second of a two-part series, legal expert Nathan Banks outlines the execution and post-completion phases of the process

Parties need different documents to close the deal depending on whether it is a merger or an acquisition. Photo: Getty Images
Parties need different documents to close the deal depending on whether it is a merger or an acquisition. Photo: Getty Images

Merger and acquisition transactions are comparable to assembling complicated puzzles with hundreds of unique pieces. UAE companies exploring the suitability of M&As for their businesses will need to carefully define a strategy that aligns with their overall corporate growth plan.

A comprehensive due-diligence process is vital in identifying risks and opportunities, while detailed integration and change management plans provide the necessary structure to achieve targets and ensure financial security throughout and after the transaction process.

While part one of this series looked at the key considerations for SMEs in the preliminary phases of a successful M&A transaction, here we examine the remaining stages from the execution to post-completion:

Execution stage

The documents parties need to execute the deal differ for mergers and acquisitions and also depend on the form and extent an investment may take. Here are some of the transaction documents that may be relevant for an acquisition transaction:

- Signing transaction documents for restructuring, which can include share transfer documents, share subscription documents, shareholder agreements, updated memorandums and articles of association. The number of documents required to sign depends on the nature of the acquisition.

- Amending authorised signatories of bank accounts to ensure incoming management takes control over the bank accounts of the acquired business.

- Seeking regulatory approvals and filing forms with relevant local government authorities.

- Putting together a short to medium-term business plan in the context of any pending regulatory approvals, to ensure the company being acquired continues to operate without any interruption.

- Reviewing and updating compliance and anti-money laundering policies. This may be required to update policies in alignment with the business model of the acquiring entity.

- Executing contracts and agreements to transfer assets or for assuming liabilities. Once negotiations are completed during the due-diligence phase, appropriate documents need to be drafted to transfer ownership of assets of an acquired business. This will allow parties to make immediate use of resources to carry on with business without interruption.

- Signing powers of attorney, authority letters and other instruments, to consolidate managerial powers. This is relevant and must be completed as soon as the share transfer takes place. Power of attorney is a key document that may be needed to sign and execute new commercial contracts, employment agreements and IP agreements.

- Revising and updating IP licensing agreements, assignment agreements and IP portfolios is often necessary in an acquisition to note changes in the business model or licensing terms.

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Read more:

The critical stages of a successful M&A transaction for SMEs

Banking a challenge for 65 per cent of UAE SMEs, study shows

Abu Dhabi stimulus to spur growth 'a boost for SMEs'

Global M&A appetite ‘at four-year low’, says EY

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Post-completion

The post-completion phase of the process focuses primarily on the delivery of projected synergies and transformational opportunities to achieve growth and revenue targets. Depending upon the scope of any merger or acquisition, here are some key considerations:

- Change in management

Maximising human capital following a merger or acquisition is critical to the success of newly merged or acquired companies. This may entail appointing new managers in line with the new entity’s broad strategy and plan.

* Employment issues

The acquiring entity may be required to update HR policies and procedures to reflect changes in management processes. It may also be appropriate to revise or negotiate compensation structures with key personnel to manage employee turnover post-transaction.

* Compliance policy

Standard compliance policies or manager’s duties should be put in place to comply with local laws.

The integration plan should be developed in coherence with the due-diligence process and implemented immediately after the deal closes. This plan focuses on sustaining current operations, identifying critical decisions to be made, maintaining labour relations and productivity, integrating different corporate cultures and organising processes to keep pace with shareholder demands.

It is an essential step in ensuring the success of any merger or acquisition as it highlights required post-acquisition or merger activities to be executed on the first day, in the first week, the first 100 days, the first year and so on.

Mergers and acquisitions have the potential to be the most powerful and versatile growth tools available to UAE SMEs from all industries. A well-timed and well-managed acquisition or merger can boost both short-term as well as long-term outlooks for many organisations.

Nathan Banks is the managing partner of UAE legal firm Banks Legal