Corporate Transactions: Best Practices for Successful Deals

Corporate transactions can have significant implications for a corporation and its stakeholders. For deals to be successful, companies must act strategically to maximize value and minimize risk. It is also important to fully understand the legal and financial ramifications of corporate transactions, both in the near and long term.

Understanding Corporate Transactions

The term “corporate transactions” broadly refers to major business activities that involve changes to a company’s structure, ownership, assets, or financial strategy. Common examples include mergers & acquisitions, joint ventures, spin-offs, initial public offerings (IPOs), debt restructuring, and bankruptcy.

The reasons for corporation transactions are varied and may include:

• Gain a competitive advantage
• Grow market share or access new markets
• Increase operational efficiency
• Acquire new technologies or intellectual property
• Optimize capital structure
• Respond to regulatory changes

Short form merger processes can provide efficient alternatives for certain types of corporate transactions.

Five Keys to Successful Corporate Transactions

Companies pursue corporate transactions throughout their life cycle. Whether the goal is to raise capital, gain market position, or improve efficiency, the keys to a successful deal are similar. Some of the most important are discussed below.

Effective Negotiation

Before entering into any negotiation, it is important to establish clear goals and expectations. This includes determining your critical deal terms, as well as identifying less significant terms on which you may be willing to compromise in order to maintain momentum and foster goodwill.

During business negotiations, nondisclosure agreements are also invaluable. While you may be confident that the deal is going to close, negotiations do not always go as planned, and it is important to safeguard any confidential information provided. Similarly, businesses should also never be afraid to walk away from a transaction if the terms don’t serve your best interest.

Comprehensive Due Diligence

The due diligence process, in which you gather information about the other party prior to consummating a transaction, can be the most complicated and time consuming aspect of a transaction. However, it is always worthwhile.

While balance sheets and other financials are part of due diligence, to gauge the full impact of the deal, the process should also include cultural, operational, technological, and regulatory aspects. Failing to uncover hidden liabilities, employee issues or to identify operational issues can lead to unexpected costs and legal issues down the road. Corporate restructuring in mergers and acquisitions requires careful evaluation of these factors to ensure successful integration.

Careful Deal Structuring

The choice of structure can significantly impact everything from regulatory requirements to shareholder acceptance. When structuring a transaction, the guidance of trusted advisors, including legal counsel, investment bankers, tax experts, and industry specialists, can be invaluable. Experienced professionals can help confirm that the transaction not only protects your best interests, but also advances your goals by optimizing tax treatment, financing methods (cash, stock, debt), and legal entity structure. While all transactions have risks, companies can also use earn-outs, indemnities, and other contingent clauses to manage uncertainty.

Regulatory Compliance

Underestimating the complexity of regulatory hurdles can significantly impact a corporate transaction, leading to both legal headaches and costly delays. For instance, companies engaged in a M&A transaction should determine at the outset whether the deal is likely to trigger FTC or EU antitrust concerns. The parties should also consider what disclosure and filing requirements may be necessary under state and federal securities laws. Consulting with counsel experienced in these areas at the outset can significantly reduce the likelihood of unanticipated roadblocks. Antitrust litigation considerations become important when deals face regulatory scrutiny or enforcement actions.

Post-Merger Integration Plan Development

Many companies fail to devote enough attention to what happens after the transaction closes, which can significantly impact its ultimate success. Developing a comprehensive post-merger integration plan at the outset is necessary. For instance, a well-structured post-merger integration plan can help unify the businesses (operationally, financially, and culturally) so that the transaction achieves its intended objectives. Clearly defined leadership roles and a detailed communication strategy are also vital.

Corporate Transactions Require Comprehensive Legal Guidance

Complex corporate transactions require expert legal guidance. Whether your company is planning an IPO or a divestiture, Scarinci Hollenbeck’s Corporate Transactions & Business Group is uniquely equipped to provide comprehensive advice on the unique legal implications and requirements of your corporate transaction. As a full-service law firm, we can quickly assemble a multi-disciplinary team of experienced attorneys who can help you successfully move through the transaction from due diligence to financing to tax planning to post-merger integration plan development.