Introduction
Mergers and acquisitions (M&A) frequently occur in the corporate world. It is one of the strategic tools which companies utilise to achieve various business objectives, for example, to achieve revenue or profit growth, to expand into new markets, for business synergies, for cost efficiencies, and to increase market competitiveness. On other occasions, parties enter into M&A transactions to acquire valuable intellectual property and to gain access to new technologies in a bid to diversify their product and service offerings.
If there are any suggestions and/or legal queries, please feel free to contact the author, Waltson Tan,at: waltson@tjylaw.com.sg
The Key Phases in an M&A Transaction
Besides advising clients on the complex legal issues surrounding an M&A transaction, an M&A lawyer typically assist their clients with the following:
- Term Sheet
An M&A lawyer can assist their client to prepare a term sheet, which is a document outlining the salient terms and conditions of the proposed sale or acquisition (depending on which party the lawyer is representing).
A term sheet establishes the foundational basis which the parties will take reference from when they engage in future negotiations of the definitive agreement(s) (e.g. the share purchase agreement (SPA), the share subscription agreement (SSA) and /or the shareholders’ agreement (SHA)). Typical clauses within the term sheet would relate to the deal structure, the price mechanism and the exclusivity period for the parties to complete the transaction.
It is usually the first legal document to be executed in relation to a proposed sale or acquisition. There are typically clauses within the term sheet which are binding, and others which are non-binding.
- Legal Due Diligence
After the term sheet is signed, the sell-side will typically organise a virtual or physical data room where the relevant documents relating to the target company (Target) in relation to the proposed transaction will be deposited for the purchaser, the investor and their advisers to review. Such documents may relate to all aspects of the Target’s business (e.g. financial statements, tax reports, legal contracts, licences and permits etc.). The purchaser or investor’s M&A lawyer will typically prepare a legal due diligence questionnaire for the sell-side to guide them in furnishing the relevant documents to the data room.
The main role of an M&A lawyer acting for the purchaser or the investor would be to review the documents which may have an impact on the legal aspects of the transaction. On the other hand, the main role of an M&A lawyer acting for the seller or the Target would be to address any legal queries which their counterparties may raise in the legal due diligence process and to advise on how best to respond to legal queries. This process is known as “legal due diligence”.
The scope of the legal due diligence is typically discussed with the purchaser or investor prior to the legal due diligence exercise, and may involve aspects such as: (i) confirmation of share title; (ii) legal review of the tenancy agreements, land titles, key employment agreements, key supplier and customer agreements; (iii) legal review of the business permits and licences; (iv) confirmation of ownership of intellectual properties; (v) compliance with data privacy laws etc. Naturally, the scope of the legal due diligence exercise would have an impact on the legal fees involved.
Once the legal due diligence exercise is completed by the purchaser or investor’s M&A lawyer, the M&A lawyer involved will prepare a legal due diligence report to highlight any issues which may be uncovered during the legal due diligence exercise. These issues would then be highlighted to the parties involved in the transaction, and are either resolved prior to or after the signing of the definitive agreement(s) (see paragraph 4(a) above in relation to definitive agreements).
Thereafter, the parties involved in the transaction will prepare, negotiate and finalise the relevant definitive agreement for execution. This aspect of the transaction is often led by the M&A lawyers representing the respective parties.
- Signing of the Definitive Agreement and Completion of the M&A Transaction
In general, there are two major milestones in relation to an M&A transaction. They are: (i) the signing of the definitive agreement; and (ii) the completion of the transaction. The former is self-explanatory, whereas the latter refers to the date on which the consideration due on the date of completion is paid by the purchaser in exchange for the shares which are either: (A) transferred to the purchaser or investor; or (B) issued to the investor.
M&A transactions are typically structured as either: (I) simultaneous signing and closing (i.e. the signing of the definitive agreement and the exchange of consideration occurring on the same date); or (II) split signing and closing (i.e. the signing of the definitive agreement occurs on the date of signing and parties exchange consideration on a later date). The former is more typically seen in smaller transactions (which tend to be more straightforward), and the latter is more typical for larger transactions (which tend to be more complex).
For transactions which are structured in the manner of split signing and closing, parties usually use the gap in time to work towards the satisfaction of conditions precedent to the completion of the transaction, which are set out in the signed definitive agreement.
An M&A lawyer is typically assisted by a corporate secretarial provider to complete the transaction. The corporate secretarial provider may either be appointed externally or may be a representative from the law firm engaged by the purchaser or the seller.
- Share Purchase Agreement
In the acquisition and sale of shares of the Target, the M&A lawyers involved in the transaction will prepare and negotiate the definitive agreement, being the SPA. The SPA will set out the terms of the agreement, which include (amongst others): (i) the parties to the transaction; (ii) the consideration (or price) in relation to the share sale; (iii) the conditions precedent to the completion of the transaction (if any); (iv) the post-completion undertakings and covenants of the parties (if any); (v) the time and place of completion; (vi) the representations, warranties and indemnities provided by the parties; (vii) the termination rights and remedies of the parties prior to completion; and (viii) the governing law and the dispute resolution mechanism binding on the parties.
- Share Subscription Agreement
Another manner in which an M&A transaction may be structured is by way of the issuance of shares in the Target to the investor, who is the subscriber of such shares. In contrast to the acquisition and sale of shares, the issuance and subscription of shares by the Target and the investor respectively would not involve the buying and selling of shares between the investor and seller. Accordingly, this manner of structuring a transaction is not, strictly speaking, a “merger” nor an “acquisition” but because it can result in the onboarding of a new shareholder, it is mentioned in this article.
In the issuance and subscription of shares of the Target, the M&A lawyers involved in the transaction will prepare and negotiate the definitive agreement, being the SSA. Similar to the SPA, the SSA will set out the terms of the agreement, which include (amongst others): (i) the parties to the transaction; (ii) the consideration (or price) in relation to the subscription of shares; (iii) the conditions precedent to the completion of the transaction (if any); (iv) the post-completion undertakings and covenants of the parties (if any); (v) the time and place of completion; (vi) the representations, warranties and indemnities provided by the parties; (vii) the termination rights and remedies of the parties prior to completion; and (viii) the governing law and the dispute resolution mechanism binding on the parties.
- Shareholders’ Agreement
Where the shares of the Target are owned by more than one shareholder after the completion of the M&A transaction, the shareholders of the Target would typically enter into an SHA.
An SHA is a cornerstone private agreement between two or more shareholders of a company, and which serves to govern the legal relationship amongst them. Depending on the intention and objectives of the parties, the Target may or may not be a party to the agreement. Broadly, this agreement sets out the rights and obligations of the parties, and which are typically in addition to those provided in the constitution (formerly known as the memorandum and articles of association) of the Target.
The key legal purposes of a shareholders’ agreement include: (i) protecting the rights of shareholders; (ii) setting the framework for managing the Target after the transaction; (iii) agreeing on the options relating to share transfers and exit from the Target as shareholders; (iv) enhancing the confidentiality of the business of the Target; and (v) setting clear dispute resolution mechanisms. These aspects are covered in more detail in our other article: Navigating the Legal Landscape: Key Purposes and Typical Clauses of a Shareholders’ Agreement.
An M&A lawyer would also be able to assist with the drafting of the SHA, which would mitigate the risks of disputes and foster transparency amongst shareholders.
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Ancillary Transaction Documents
Apart from the term sheet, the legal due diligence report and the definitive agreement(s), an M&A lawyer would also typically be involved in the preparation of ancillary transaction documents. These documents refer to the other legal documentation required for an M&A transaction such as: (i) the board and shareholders’ resolutions approving the transaction; (ii) the conditions precedent certificate (confirming the satisfaction or waiver of each of the conditions precedent set out in the SPA or the SSA by the seller and the purchaser respectively);(iii) notices to be sent to any third parties in relation to the consummation of the transaction; (iv)
the waiver letters to be signed by the existing shareholders in relation to the consummation of the transaction; (v) the stamp duty documents; and (vi) the share transfer instrument.
- Payment of Stamp Duties
The rate of stamp duties on the acquisition of shares is 0.2% of the purchase price or the value of the shares, whichever is the higher. The amount payable is rounded down to the nearest dollar, subject to a minimum duty of S$1.
Stamp duties are only payable for transactions which are consummated by way of a share acquisition and sale. Therefore, if the parties consummate the transaction by way of share issuance and subscription, stamp duties are not payable for the transaction. This may be a relevant factor in deciding on the deal structure of a proposed transaction. An M&A lawyer and a tax adviser would be able to provide specific guidance on particular scenarios.
Stamp duties should be paid before parties sign the SPA. However, if parties have signed an SPA and stamped it within 14 days after signing the document if it is signed in Singapore or within 30 days after receiving the document in Singapore if the document is signed overseas, no penalty would be charged for late payment of stamp duties.
Once stamp duties are paid, a stamp duty certificate would be issued to the payor.
- Share Transfer
As mentioned above, an M&A lawyer is typically assisted by a corporate secretarial provider to complete the transaction. The transaction would be considered as completed once the corporate secretarial provider updates the change of shareholding on the companies register of Singapore (i.e. the Accounting and Corporate Regulatory Authority).
How to Choose your M&A Lawyer
Generally speaking, an experienced M&A lawyer who has completed numerous transactions of varying deal sizes and has worked on transactions in a broad range of industries will have the requisite specialised knowledge and experience to protect their clients’ interests and to guide their client to completing the transaction.
As with choosing a medical specialist to treat an illness, clients tend to prefer working with a lawyer who is able to provide a fair and transparent fee structure, is detail-oriented and highly responsive, and who has a wealth of experience in closing M&A transactions over the course of the lawyer’s career.
A good rule of thumb to adhere to when considering which M&A lawyer to appoint is to ask the lawyer for a list of past M&A transactions which he or she was involved in, and the specific nature of their involvement in such transactions. Ideally, this should give the client a good sense as to which shortlisted lawyer is the best person for the job.
Notable Past Transactions of the Author
Prior to joining the firm, the author practised at some of the top law firms in Singapore and thereafter, at a leading international law firm, which was the second largest law firm in the United States and one of the ten largest in the world.
Throughout the course of his career, he has been involved in M&A transactions with deal sizes which range between nominal consideration (i.e. a small amount of consideration) to approximately S$500 million.
Given the range of transactions he has worked on (each of which requires different levels of attention to different aspects of the transaction), Waltson is an M&A lawyer who is well-placed to advise on transactions of varying ticket sizes.
Some of the notable M&A transactions which Waltson has participated in are as follows:
Above S$50 million
- (Acted for CrowdOut Capital, an Austin-based investment firm, and its private equity fund, CO Long Term Equity Fund I LP, in its acquisition of Sourceability, a global distributor of electronic components offering digital tools, services and data for approximately US$250 million.
- Acted for Rario, the creator of the world’s first cricket non-fungible token (NFT) platform, and its founders in relation to its Series A fundraising exercise led by Dream Capital and Alpha Wave Capital, raising total gross proceeds of approximately US$120 million.
- Acted for a French multinational integrated energy and petroleum company listed on the NYSE and Euronext Paris stock exchanges, in its proposed acquisition of a rooftop solar power project developer and independent power producer for approximately US$90 million.
- Acted for a Japanese company listed on the Tokyo Stock Exchange, in its proposed acquisition of a leading Singapore food and beverages chain for approximately S$80 million by way of an auction sale.
- Acted for Posco International Corporation, the largest general trading company in South Korea listed on the Korea Exchange, in its acquisition of Grain Terminal Holding (which holds a grain terminal in the Ukranian Black Sea port of Mykolaiv) from Orexim Holdings, a Ukrainian company, for approximately S$55 million.
- Acted for a global market leader in chemical distribution in its acquisition of a South East Asia chemical distributor, for approximately US$45 million.
Between S$10 million and S$50 million
- Acted for Quadria Capital, a leading Singapore private equity firm with a focus on the healthcare sector, in its approximately US$30 million investment in warrants, Class A and Class B shares in Lablink, a healthcare company in Malaysia which specialises in pathology and diagnostics services.
- Acted for Challenger Limited, an Australia-based investment management company, in its proposed acquisition of a minority stake in Proterra Investment Partners for approximately US$15 million, which will entitle it to a percentage of the fees payable to and received by Proterra and its relevant subsidiaries.
- Acted for Start Today, a Japanese online fashion retailer, in its acquisition of Bespokify, a company with automation capabilities to produce custom-fitted and designed apparel at scale, for approximately US$10 million.
- Acted for Advance Intelligence Group, the parent company of buy now, pay later (BNPL) service Atome, in its acquisition of Jewel Paymentech for approximately S$12 million.
- Acted for Quadria Capital, in its approximately US$5 million investment in Class A shares in Strand Life Sciences, a specialised medical diagnostics company with a pan- ndia presence.
Below S$5 million and transactions with undisclosed deal sizes
- Acted for OSK Ventures, a leading Malaysia venture capital firm listed on Bursa Malaysia, in its US$2 million Series A1 investment in Turnkey Lender, a start-up company led by its Russian founders which provides cloud-based lending solutions.
- Acted for the founders in the sale of their family-owned local food and beverages group, which has been in business for over 20 years, with 8 outlets in Singapore and more than S$3 million in yearly revenue.
- Acted for a leading Chinese financial institution, dual-listed on the Shanghai stock exchange and the Hong Kong stock exchange, in its proposed acquisition of an international boarding school founded in the UK with colleges worldwide.
- Acted for Mitsui & Co, one of the largest sogo shosha (general trading companies) in Japan listed on the Tokyo Stock Exchange, in its disposal of Car Club, a leading car- sharing platform in Singapore.
- Acted for Pacific Healthcare, a leading integrated healthcare provider in Singapore, in its acquisition of a private medical practice.
Our firm specialises in representing the buy-side, the sell-side, investors and target companies in mergers and acquisitions transactions.
The author, Waltson Tan, is a corporate lawyer based in Singapore. He is qualified as an advocate and solicitor in Singapore and has more than seven years of post-qualification experience.
Waltson focuses his practice on mergers and acquisitions, private equity, joint ventures, investment funds and other general corporate and commercial transactions. He has also represented numerous leading multinational organisations on a broad spectrum of corporate, regulatory, cross-border restructuring and employment matters.
Waltson also advises clients on a monthly and yearly retainer basis, where he provides dedicated services to each client in relation to the issues which clients face, including general corporate and employment related matters.
