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17/02/2023

Acquisition: managing the delicate pre-closing period

Signature closing

This is a particularly critical phase. The period between entering into discussions with a view to acquiring a company and the actual closing of the transaction is a source of major uncertainty for the acquiring entity. What can be done to secure the acquisition? What issues need to be addressed? Experts from AURIS Finance, a merger and acquisition consultancy, provide an analysis.

Acquisitions generally follow a four-step process: an initial negotiation leading to the exchange of letters of intent is followed by a period of information and consultation with employee representatives, followed by the signing of the sale agreement. The transaction is not completed until the suspensive clauses have been met. It is therefore rare for an acquisition to be concluded within a few weeks. Depending on the size of the company, its industry and the market in which it operates, it often takes several months to complete a transaction. Some deals may even take a year to finalise.

Managing the target in the ‘ordinary course of business’ standard.

A long period of time during which several major events may occur. It is therefore important to be prepared from the outset. For example, most memoranda of understanding include a transition management clause. This ensures that the company’s activities are carried out in the ‘ordinary course of business’ between the date of the agreement and its completion. This precaution ensures that the buyer does not acquire a target company in a situation which is materially different from that found during the due diligence process. During this period, management must continue to run the business as usual and not make any major structural changes to the business.

The importance of the human factor

One of the most important issues in an acquisition is to retain key people. Securing the key functions of the company by negotiating packages designed to keep key directors interested in the transaction can help retain talent until the deal is finalised, or even after. On the employment front, cost containment can also be agreed in negotiations. For example, any salary increases or new benefits for employees during the pre-closing period should be agreed to by the acquiring company.

Competition authority

Although clauses can be put in place prior to the closing of the transaction, buyers should still be very cautious. Indeed, the risk of the transaction not being completed still needs to be considered. In this case, it will be important not to commit too much in advance, especially when negotiating management packages. Moreover, all these clauses must be considered in strict compliance with French and European competition law in order to avoid a pre-emptive takeover in breach of merger control (gun jumping). In fact, any transaction subject to merger control cannot be carried out without the prior authorisation of the competent competition authority.

Get the support you need

From managing key personnel to complying with competition and employment laws, the period between initial negotiations and the actual signing of a deal raises many issues. AURIS Finance’s sector specialists are at your side to help you complete your acquisition transactions.

Contact us