Corporate/M&A

In a nutshell

Corporate lawyers provide advice to companies on significant transactions affecting their activities, including internal operations, the buying and selling of businesses and business assets, and the arrangement of the finance to carry out these activities.

Mergers and acquisitions (M&A) involve one company acquiring another by way of a takeover (acquisition), or two companies fusing to form a single larger entity (merger). The main reasons for a company to execute an M&A transaction are to grow its business (by acquiring or merging with a competitor) or add a new line of business to its existing activities. During a recession, mergers are also a means of strengthening two or more existing companies facing financial trouble. M&A can either be public (when it involves companies listed on a stock exchange) or private (when it concerns companies privately owned by individuals).

Corporate restructuring involves changes to the structure of a company and the disposal of certain assets, either because the company wants to concentrate on more profitable parts of its business, or because it is facing financial difficulties and needs to free up liquidity.

What lawyers do

  • Negotiate and draft agreements – this will be done in conjunction with the client, the business that is being bought or sold, other advisers (eg accountants) and any financiers.
  • Carry out due diligence – this is an investigation to verify the accuracy of information passed from the seller to the buyer. It establishes the financial strength of the company; the outright ownership of all assets; whether there are outstanding debts or other claims against the company; any environmental or other liabilities that could reduce the value of the business in the future.
  • Arrange financing – this could come from banks or other types of investors; they will wish to have some kind of security for their investment, eg participation in the shareholding, taking out a mortgage over property or other collateral.
  • Gather all parties for the completion of the transaction, ensuring all assets have been properly covered by written documents that are properly signed and witnessed. Company law requires that decisions are made at properly convened board meetings and recorded in written resolutions.
  • Finalise all post-completion registrations and procedures.

Realities of the job

  • The type of clients your firm acts for will determine your experiences. Publicly listed companies and the investment banks that underwrite deals can be extremely demanding and have a different attitude to risk than, say, rich entrepreneurs, owner-managed businesses (OMBs) and small to medium-sized enterprises (SMEs). To deal with such clients, a robust and confident manner is required and stamina is a must.
  • Corporate transactions can be large and complicated, with many different aspects of the company affected in the process. Lawyers need to be conversant in a variety of legal disciplines and know when to refer matters to a specialist in, say, merger control (competition), employment, property or tax.
  • Corporate deals involve mountains of paperwork, so you need to be well-organised and have good drafting skills. Above all, corporate is a very practical area of law, so commercial acumen and a good understanding of your clients’ objectives is a must.
  • Corporate work is cyclical and therefore the hours lawyers work can vary depending on the general state of the market and the particular needs of the clients, whose expectations have risen even further since the widespread use of instant modes of communication. It's fair to say there can be some very late nights.
  • The most junior members of a deal team normally get stuck with the most boring or unrewarding tasks. The banes of a corporate trainee’s life are data room management (putting together and caretaking all the factual information on which a deal relies) and bibling (the creation of files containing copies of all the agreed documents and deal information). More challenging tasks quickly become available to driven junior lawyers.
  • You need to become absorbed in the corporate world. If you can’t develop an interest in the business news then choose another area of practice pronto.
  • A sound grounding in corporate finance makes an excellent springboard for working in-house for major companies. Some lawyers move to banks to work as corporate finance execs or analysts. Company secretarial positions suit lawyers with a taste for internal management and compliance issues.

Current issues

  • In the first half of 2016 there were 638 domestic and international transactions involving UK entities totalling $58.2 billion in value, a drop of 68.6% compared to the record-breaking activity of 2015 and the lowest levels seen since 2010. Even in the face of the volatility of quarter-by-quarter measurement, this number is historically low. The UK's involvement in deals in Europe also dropped in early 2016 when compared with the previous year. This is largely attributed to market worries during the build-up to the Brexit referendum.
  • Uncertainty in M&A markets typically leads to a drop in investment activity in general, and there is the possibility that if Brexit negotiations drag on for a long time the markets could remain jittery and M&A/investment activity low. However, the post-referendum result panic appears to be calming and the long period before a UK-EU deal is negotiated appears to have created a window of relative stability. Savvy companies and investors (especially those which can capitalise on the low value of the pound) are viewing this as an opportunity to make strategic or carefully targeted acquisitions, and are on the hunt for bargains. Reporting from Bloomberg indicates that, already, a number of deals that were previously thought to have been too expensive are being revisited.
  • Meanwhile, China's outbound M&A grew sharply in the first half of 2016 compared to the same period in 2015, but only 0.07% of its $89 billion of overseas purchases involved companies based in the UK, while 58.6% and 25.8% of spending related to Europe and Northern America respectively.
  • Globally, total deal value stood at a cool $1.5 trillion in the first half of 2016, a notable drop from $1.9 trillion for the same period in 2015, but still above the $1.4 trillion of 2014. A significant proportion of deals relate to the energy and infrastructure and technology, media and telecoms sectors, but some of the biggest individual deals of 2016 are in the life sciences sector. The largest deals in the first half of 2016 include Microsoft's $28.1 billion acquisition of LinkedIn and Shire's $32 billion merger with Baxalta. Two of the biggest M&A deals in the pipeline are the proposed $30.6 billion takeover of St Jude Medical by Abbott Laboratories and the possible $62 billion merger between Bayer and Monsanto.
  • Large corporate businesses with global operations often have to apply for merger clearances in a number of territories worldwide before a transaction can be completed. Regulatory clearance is a growing feature of M&A work in the UK too and Theresa May's new government has suggested it could block major foreign takeovers if they are not seen to be in the national interest; M&A lawyers are having to become an increasingly patient bunch.