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.
- 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. The British government is continuing to tighten its screening of foreign investments to ensure that takeovers are in the national interest and to limit potential threats to national security. Out of the main western economies, Britain is one of the most open to foreign investment, especially when it comes to telecoms deals and nuclear power projects. The Chinese investment behind the construction of the Hinkley Point C nuclear power station recently hit the headlines for the reasons stated above. Governments elsewhere are also clamping down: in 2017 Germany, France and Italy presented the European Commission with a common position on the screening of foreign investments, signalling a move toward a mechanism similar to the US Committee on Foreign Investment.
- 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. Of late, deals in the UK have primarily been driven by inbound activity as savvy investors look to take advantage of the declining value of the pound post-EU referendum result. The numbers coming out of the Office for National Statistics show that in 2016 the total deal value for inbound mergers and acquisitions stood at £187.4 billion – the highest it's been since the data was first published in 1969. Foreign investment from China was especially high: in 2016 there were 25 Chinese-led UK acquisitions valued at £6.8 billion compared to 15 at £1.3 billion in 2015.
- The results for the first quarter of 2017 are more sobering, however: the value of inward M&A fell to £5.1 billion – the lowest it's been since 2014. The value of outward-bound M&A also fell to levels not seen since 2013, while the value of purely domestic acquisitions stood at £3.6 billion compared to £11.9 billion in the first quarter of 2016.
- Globally, the value of M&A deals fell by 19% in 2016 to $3.2 trillion. While the UK, North America and the Asia-Pacific region all saw dips, deal value in Germany rose by 27%. India and Africa were also bustling with M&A activity. When it comes to sectors, the technology, energy and industrial/chemical areas are producing lots of deals, while the consumer, retail and leisure sectors are performing poorly. The most active sector for M&A in the UK in 2016 was technology, partly due to SoftBank’s acquisition of ARM Holdings, which was worth £24.3 billion.
- Factors that may hinder M&A activity throughout 2017 include tax and policy reforms in the US; the outcomes of the various elections taking place across Europe; and the inevitable re-jigging of global trading relationships post-Brexit.