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. Mergers are also a means of strengthening two or more existing companies facing financial trouble, and companies going into administration can be snapped up in so-called pre-pack deals. 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 (e.g. 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, e.g. 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.
- Before the hammer blow of Covid-19, global M&A activity was strong. Despite a 3% decrease from 2018 year-end levels, 2019 saw M&A value total approximately $3.9 trillion. It was the fourth strongest year for deal-making historically, as well as the sixth consecutive annual period to exceed $3 trillion. The US continued its dominance on the world scene, with 15 of the top 20 M&A deals occurring there.
- Brexit remains a talking point. While the UK formally departed the EU on 31st January 2020 – officially ending the uncertainty surrounding its departure – future negotiations, likely to be exhaustive and forensic in detail, still raise significant concerns for the foreseeable future and may continue the postponement of deals. In a potentially ominous sign of what's to come, M&A in the UK almost halved in 2019, falling to £154 billion from £302 billion recorded during Q1-Q3 in 2018.
- The coronavirus pandemic was predictably catastrophic for the mergers and acquisitions market, with companies focusing on protecting their existing assets and cashflow. The first few months of 2020 were the slowest for M&A in seven years, and the figures for summer will very possibly turn out even worse. Occasional opportunistic takeovers happened where cash-rich investors bought out companies whose equity had plummeted due to the recession.
- Commentators like Goldman Sachs have identified similar patterns to previous M&A down cycles. An initial wave sees involuntary deals, as companies facing trouble generate liquidity through the selling of assets or bankruptcy sales. A second wave – known as ‘near-in M&A’ – sees potential combinations and joint ventures explored by companies as means of mitigating and/or reducing transaction risks. A third wave will see a return to pre-existing patterns, with transactions designed to stimulate growth through acquiring non-core business or through cross-border transactions.
- With many deals postponed rather than cancelled completely, private equity-backed transactions are expected to lead the charge in the acquisition market in any kind of recovery. 2019 marked the strongest annual period for private equity deals in the last decade – 27.5% of all global transactions had private equity firms on both sides – with many expected in the latter half of 2020 and early 2021 as a continuation of this growth.
- Protectionism and threats of tariff impositions by world leaders including President Trump have threatened the previously unstoppable trend of globalisation. In 2019, cross-border deals plummeted 25% compared to 2018, a trend continuing in 2020 as domestic governments consolidate and adopt greater protectionist strategies. Accordingly, foreign investment reviews are increasing, with the EU now reconciling foreign investment with national security implications as part of its regulatory scope.
- The British government – like other national governments – has prioritised tightening merger control. Last year saw the CMA issue its first unwinding order to payments provider Bottomline in its acquisition of the payments gateway Experian. The EU has similarly adopted a harder enforcement line, with the proposed merger between Siemens AG and Alstom SA blocked by the Commission over concerns the deal would smother train-equipment market competition. An EU probe into a potential mega tie-up between Peugeot and Fiat Chrysler – currently suspended while both carmakers provide requested data – is another example of tighter regulatory enforcement.
- Companies will increasingly seek to pivot away from carbon-intensive practices as climate change creates headlines and regulation on the worst emitters becomes more distinct and punitive. Royal Dutch Shell’s unsuccessful bid for Dutch renewable company Eneco in 2019 was a landmark moment; the likelihood of higher prices and/or a tax on carbon will aim to incentivise energy giants to alter their models. On the other hand, green energy is likely to be an increasing fixture of the M&A scene in the coming years.