The Companies Act 2006 (CA 2006) is the main piece of legislation that governs transactions relating to mergers and acquisitions in the UK. The CA 2006 sets out several requirements such as shareholder approval and the need to make a fair offer to the target company’s shareholders. In the following article, we’ll take you through these requirements and what needs to be considered with mergers and acquisitions under the Companies Act 2006.

What are Mergers and Acquisitions?

Before looking in detail at CA 2006, let’s clarify what is meant by mergers and acquisitions.

Mergers and acquisitions (M&A) are business transactions in which one company acquires another company.

Mergers: In a merger, two companies combine to form a new company. The new company is typically owned by the shareholders of the merging companies.
Acquisitions: In an acquisition, one company buys another company. The acquiring company typically takes control of the acquired company and its assets.

The most common types of M&A transactions are:

A merger of equals: This is a merger between two companies of similar size and market capitalisation.
Acquisition: This is an acquisition of a smaller company by a larger company.
Takeover: This is an acquisition of a company by a hostile bidder.
Joint venture: This is a partnership between two or more companies to create a new business.
Divestiture: This is the sale of a business unit or subsidiary by a company.

Why Do Companies Merge?

Mergers and acquisitions are a common occurrence in the business world. They can be a way for businesses to grow, expand into new markets, or achieve economies of scale.

M&A transactions can be motivated by a number of factors, including:

Strategic fit: The two companies involved in the transaction may have a strategic fit. This means that the two companies can complement each other and create a stronger entity together than they would be as separate businesses.
Financial benefits: The acquiring company may believe that it can achieve financial benefits from the transaction, such as cost savings, increased market share, or access to new products or markets.
Regulatory requirements: The acquiring company may be required to acquire another company in order to comply with regulatory requirements.

How Do Companies Merge?M&A transactions can be complex, time-consuming and risky. They typically involve a number of steps, including:

Due diligence: The acquiring company will conduct due diligence on the target company to assess its financial health, assets, and liabilities.
Negotiation: The acquiring company and the target company will negotiate the terms of the transaction.
Board approval: The board of directors of both companies will need to approve the transaction.
Shareholder approval: The shareholders of both companies will need to approve the transaction.
Regulatory approval: The transaction may need to be approved by regulatory authorities.

Considerations for M&A Transactions

Businesses that are thinking about entering into an M&A transaction should carefully consider the factors involved and ensure that they comply with all of the relevant regulatory requirements.

Factors to consider include:

The strategic fit of the two businesses: The businesses involved in an M&A transaction should have a strategic fit. This means that the businesses should complement each other and create a stronger entity together than they would be as separate businesses.
The valuation of the target company: The value of the target company is an important consideration in any M&A transaction. The acquiring company will need to make an offer that is fair to the target company’s shareholders.
The financial implications of the transaction: M&A transactions can be expensive. The acquiring company will need to consider the financial implications of the transaction, such as the cost of the acquisition, the integration of the two businesses, and the potential synergies that can be achieved.
The regulatory implications of the transaction: M&A transactions can be subject to a number of regulatory requirements. The acquiring company will need to ensure that it complies with all of the relevant regulatory requirements

Regulations under the Companies Act 2006

The CA 2006 sets out a number of requirements that need to be met in M&A transactions.

These requirements include:

Shareholder approval: In most cases, an M&A transaction will require the approval of both the shareholders of the acquiring company and the shareholders of the target company.
Fair offer: The acquiring company must make a fair offer to the target company’s shareholders. This means that the offer must be at least equal to the value of the target company’s shares on the open market.
Competition law: M&A transactions can be subject to competition law requirements. If the transaction is likely to reduce competition in a particular market, it may be subject to regulatory approval.

To ensure your merger or acquisition is compliant and the process runs as smoothly as possible, here are some additional tips for businesses considering M&A transactions:

Get professional advice from a qualified solicitor or accountant before entering into an M&A transaction.
Do your due diligence on the target company before making an offer. This will help to ensure that the target company is a good fit for the acquiring company and that the transaction is financially viable.
Be prepared for challenges: M&A transactions can be challenging. Be prepared for challenges such as integration issues, regulatory hurdles, and cultural clashes.

Facing a Merger or Acquisition – Do you Need Help?

If your business is looking to grow or expand through a merger or acquisition, or your company is facing one of these circumstances, we are here to help. At Leading UK, we can clearly explain the options and guide you through the process. We provide non-judgmental advice and help develop a plan for decisive action.