M&A FOR STARTUPS

M&A For Startups

- M&A – Big Deals. M&A – Recent India Deals.- Why Startups Consider M&As?- What is an M&A? What are the kinds of M&As in the Startup Industry?- Process of Running an M&A Deal. - Important Clauses in an M&A Term Sheet.- Important Clauses in M&A Agreements.- Why do M&As fail?- What should you look for in an M&A Lawyer?

M&A - BIG DEALSDEAL AMOUNT

Dell Buys EMC Corp (2000) US$ 67 Billion

HP Buys Compaq (2001) US$ 31.8 Billion

Facebook Buys Whatsapp (2014) US$ 19.7 Billion

Twitter Buys Periscope (2015) US$ 100 Million

Paypal Buys Paydiant (2015) US$ 280 Million

Pandora Buys Ticket Fly (2015) US$ 450 Million

Cisco Buys Acano (2015) US$ 700 million

Recent M&A in India

Recent M&A in India

Why Startups Consider M&As• Inorganic Growth and Consolidation (Growth by Acquisition)

• Value Creation (Founder or Stakeholder Value)

• Talent Acquisition (Established Team and Talent)

• Investor Exit (Time Up for the Investor)

• Next Startup (Your are bored! You are a serial Entrepreneur.)

• Kill Competition (Buy out the small fish)

• Common Shareholding (Consolidate your Holdings)

What is an M&A / Kinds of M&A• M&A – generic term used in investment banking.

• Merger - A combination of two new companies to form a new company. It is a statutory process prescribed under law through the High Court.

• Acquisition – The purchase of one company by another company by a contractual arrangement, where no new company is formed.

• M&A – A Secondary transaction for acquisition or control of another interest.

• Acquisition of Shares / Acquisition of Assets / Management Buy Outs / Acquisition of IP / Acquisition of Teams / Swap of Shares /Joint Ventures

Process for an M&A• Why Are You Doing an M&A?

• Appoint your Consultants – M&A Consultant / Investment Banker, Financial Advisor, Lawyer.

• Understand the different models for the M&A you seek from your advisors. Cash Deal, Cash Outlay Deals, Equity Deals, Stock Sale Deals, Swap Deals.

• Prepare Information Memorandum (mostly driven by the IB) and Sign NDAs.

• Prepare and keep your documents ready – Due Diligence Checklist

• Term Sheet

Process for an M&A• Due Diligence – (Technical / Financial / Legal)

• Agreements – Share Purchase Agreement, Shareholders’ Agreement, Asset Purchase Agreement, IP Transfer / Assignment Agreement, Employment Agreement, Escrow Agreement, etc.

• Signing / Execution of the Agreements

• Fulfillment of Conditions Precedent (Approvals, Consents)

• Closing – Money in the Bank, Transfer of Shares.

• Post Closing Actions

Important Clauses in M&A Term Sheet• Important Clauses in the TS

• Usually non- binding (except for costs, confidentiality and exclusivity)

• Valuation

• How is the Consideration being Paid? Hard Cash, Stock, Immediate, Tranched, Cash Outlay based on Performance.

• Is it a full / part Acquisition?

• Assumptions – Various Assumptions subject to confirmation of DD

Important Clauses in M&A Term Sheet• Important Clauses in the TS

• Timelines to Completion of Due Diligence and Signing of Agreements

• General principles of acquisition like warranties, indemnities, non-compete, etc.

• Exclusivity

• Transaction Costs / break fee.

• General provisions of governing law, etc.

Important Clauses in M&A Agreements• Important Clauses in the Agreement

• Detailing of all the clauses in the TS, including manner of stock transfer, asset transfer, payment of consideration, etc.

• Conditions Precedent to Closing (items from DD / approvals from regulatory authorities, approvals from customers and vendors, etc.)

• Standstill Provisions (actions between signing and closing)

• Closing / Completion Actions – Transfer of Consideration, transfer of shares, resignation of directors, hand over of documents, etc.

Important Clauses in M&A Agreements• Important Clauses in the Agreement

• Representations and Warranties

• Indemnities (Long Drawn negotiations).

• Non-compete / Non-solicit

• Other Continuing Shareholder obligations

• General provisions (Confidentiality and Announcements, Governing Law, Dispute Resolution and Arbitration, Costs, Notices, etc.

Why Do M&As Fail• Important Clauses in the Agreement

• Limited or no involvement from the Owners / Key Personnel

• Theoretical Valuation vs. Practical Benefits

• Lack of clarity on Integration Process

• Cultural Integration Issues

• Required Capacity vs. Current Bandwidth

• Negotiation Errors

• External Factors and Changes to Business Environment

Identifying a Good M&A Lawyer• Questions before you hire your M&A Lawyer

• Experience

• Link your M&A size and complexity to the Kind of Lawyer

• Industry Knowledge

• Fees

You can reach me at

Praveen Rajupraveen@spiceroute.co