What’s it all about
18 October 2013
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18 October 2013
Corporate lawyers provide legal advice to companies on significant transactions affecting their businesses. Such transactions are of the kind that you would typically see detailed in the Financial Times, and can take many different forms. Read more >>
Mergers and acquisitions (M&A)
This is where one company acquires another, or where two companies merge together to form one enlarged company. There are many different reasons why a company would want to do this, but the two main examples are either to grow its existing business (by buying a competitor) or to diversify by acquiring a different business to that which it currently operates.
There is also a distinction between public M&A and private M&A. A public deal involves the buyer acquiring a company listed on a stock exchange (and therefore whose shares can be bought and sold by individuals, known as retail investors). In a private M&A deal the buyer acquires a company that is owned privately by a number of individuals. Therefore, one key difference between public and private M&A is that a private deal requires a willing seller, whereas in a public deal the directors of the target company may reject the offer from the buyer - in which case the buyer may still try to buy the company anyway. This is known as a hostile takeover and such deals usually attract a lot of publicity. Another distinction is that private deals tend to be less regulated than public deals.
Initial public offerings (IPOs)
An IPO involves the owners of a private company selling some of the shares in it to big financial institutions (such as pension funds) and to retail investors by listing the company on a stock exchange, as a result of which it becomes known as a public company (or plc). Again, there are different reasons why the owners of a private company would want to do this, but the two main reasons are either to enable them to raise money for themselves personally or to raise money in order to be able to expand the company’s operations and, hopefully, become more profitable as a result. Once a company’s shares are listed on the stock exchange it enables investors to buy and sell them at the price that is determined by the market.
Joint ventures (JVs)
A JV is where two or more parties enter into a form of business partnership. Both parties will contribute assets to the JV and will run it together as a separate business. A party may enter into a JV because it believes the business will be more successful if it is run in partnership with another party - if, for example, the two parties own different but complementary assets that can be contributed to the JV.
The working culture
Corporate law is mainly transaction-based. Therefore, the hours that corporate lawyers work can vary depending on the particular needs of the client and the stage the transaction is at. Corporate lawyers may well need to work late into the evening towards the final stages of a transaction and, while this can be quite demanding, it is extremely satisfying to help a client conclude a deal successfully.
Within a law firm itself, the emphasis is very much on teamwork. Corporate transactions are often large and complicated, with many different elements and workstreams. Working in a team is essential to be able to provide legal advice to a client in a timely and efficient manner to help get the deal done.
Corporate lawyers need to be able to analyse complicated legal issues and provide legal advice to a client in light of the legal rules and regulations, which will assist the client in achieving its commercial goal. Corporate lawyers also need to be able to draft legal agreements setting out the commercial deal, with the complexity of the agreement usually being determined by the complexity of the deal.
The corporate sector is constantly evolving and is affected by the wider economy. As a result of the ongoing credit crunch, companies have been finding it more difficult and expensive to borrow money from banks, resulting in them having to consider the deals that they want to do and, if buying a business or significant assets, the price they are willing to pay. As an alternative to bank debt, some public companies have recently decided to raise further finance by selling new shares to existing shareholders in proportion to their existing shareholdings in the company. This is known as a rights issue.
Companies are also affected by changes to the legal regime governing them. The Companies Act 2006 recently came into force and has changed several key areas relating to how businesses are run and what they can and cannot do.
Graham Phillips, associate, Linklaters