This checklist offers an overview of the global regulations governing mergers and acquisitions.
Mergers and acquisitions (M&A) has become a mundane expression, used daily in the media. In order to operate successfully in a global economy, corporations have become transnational and have to perform at a multinational level. To achieve such expansion, corporations acquire other companies or merge with them. These large corporations are publicly owned, listed on stock exchanges or alternative markets around the world, and engage in M&A activities that are thoroughly regulated by governments to protect the shareholders of target companies.
The laws and regulations governing M&A are very complex and strict. High levels of expertise and specialist advice are required, and corporations use several teams of lawyers who specialize in the jurisdictions involved in M&A.
In 2003, the European Parliament published a directive that regulated the way in which securities were to be offered to the public or admitted to trading. This became known as the EU Prospective Directive. Its scope was to harmonize and homogenize capital markets within the European Union. In essence, the directive allows a company that issues shares in more than one EU member state to be governed by a single member state, rather than by each member state in which the shares are offered.
In the United States, federal securities laws and regulations are generally applicable if US investors own securities in a foreign target company. In the United States, the Securities and Exchange Commission is the body that supervises and oversees the most important participants in the securities world, such as securities exchanges, dealers, brokers, and mutual funds. Its most important role is to promote disclosure and transparency of market information by maintaining fair dealing and ensuring protection against fraud.
In Australia, the responsibility belongs to the Australian Stock Exchange and the Australian Securities and Investments Commission, while the relevant body in the United Kingdom is the London Stock Exchange.
In September 2006 the Regulations on Foreign Investors’ Mergers and Acquisitions of Domestic Enterprises came into force in China, as a direct result of an increase in M&A transactions and the general opening up of the country.
Japan has recently eased regulation on foreign investment by introducing legislation that allows foreign-owned companies to invest in Japanese companies through stock-for-stock (share-for-share) exchanges with the Japanese subsidiaries of those companies.
M&A regulations protect shareholders and investors in the acquirer and target company.
In general M&A regulations allow for the harmonization and homogenization of international markets and thus maintain transparency, fair dealing, and protection against fraud.
M&A regulations are very complex.
Specialist financial and legal advice is always required when participating in M&A activity.
The cost of an acquisition is usually high, and specialist advice only adds to this cost.
Recognise the complexity of M&A regulations.
Seek specialist professional advice at an early stage when considering a possible M&A deal.
Appreciate that while the costs of enlisting professional help to explore global M&A opportunities can be high, the long-term rewards from successful international deals can be considerably higher.
Dos and Don’ts
Carefully balance the implications of a developing business against the advantages and disadvantages of acquiring an existing one before committing to any expense.
Obtain relevant advice regarding the acquisition or merger.
Research the market carefully before making a decision.
Don’t underestimate the need for proper research and professional advice.
Don’t ignore the importance of integrating the new operations within the existing business; otherwise the consequences could be costly.
Don’t be afraid to decide against the acquisition if the signs are that it will not be a good investment.