Signing a merger or acquisition agreement can commit you to a transaction long before completion. The document may allocate substantial financial, regulatory and operational risks. In Australia, the legal framework for mergers and acquisitions can involve the Corporations Act 2001, Competition and Consumer Act 2010, foreign investment rules and tax obligations. The agreement must do more than record the purchase price. It should manage what happens before completion, at completion and after the deal closes.
On that note, this blog covers seven questions to ask before signing, helping you identify major legal and commercial issues.
1. Is There Any Regulatory Approval Required For The Transaction?
First, get all the approvals, notifications, or clearances required. The mandatory merger control regime came into effect in Australia from 1 January 2026. As per this regime, the acquisitions have to be notified to the ACCC prior to proceeding with them in certain cases.
Determine whether there might be any competition issues in the relevant market. Examine the notification threshold and other requirements, including foreign investment requirements. Foreign investors would require approval under the Foreign Acquisitions and Takeovers Act 1975. Make these requirements part of the conditions precedent.
2. What Is Being Acquired/Transferred?
Second, clarify exactly what the transaction transfers. A share purchase transfers the ownership in the company and its contractual rights and liabilities. An asset purchase transaction includes specific assets and liabilities to be transferred to the purchaser.
Check asset schedules, the list of excluded assets and liabilities. Determine whether customer agreements, software licences, trademarks, leases, equipment, etc. are included. Each of the transferred assets and liabilities has to be identified in the agreement. When reviewing these provisions, mergers & acquisitions agreement lawyers can help identify whether the transaction documents properly reflect the agreed scope of the acquisition.
3. How Will The Final Purchase Price Be Determined?
The final purchase price might be adjusted due to the completion accounts/net debt/cash/working capital adjustment, etc. Examine the accounting treatment and the determination date. In case of an earn-out, define the performance target, determination period and formula for calculation.
Determine whether the earn-out payment would depend on EBITDA/revenue/customer retention, etc., and how post-closing actions would impact the calculation. The tax treatment needs to be reviewed as well. Different structures of a share or asset acquisition would result in various GST and income tax outcomes in Australia.
4. Warranties and Indemnities For Existing Liabilities?
Warranties are contractual representations about the target, while indemnities relate to identified liabilities or losses. Look for any warranties relating to accounts, tax returns, litigation, employment liabilities, intellectual property, compliance and material agreements. The disclosure schedules may limit such warranty claims.
Next, look at the seller’s liability cap, claim threshold and survival period. There might be specific indemnities for a tax dispute, contamination liability, employee claim or regulatory investigation. This helps determine if the historical liabilities stay with the seller or shift the economic risk of the liabilities to the buyer.
5. What Conditions Need To Be Met Before Completion?
The main conditions may include ACCC approval, foreign investment approval, shareholder approval, finance and approval to transfer a specified lease or customer contract. Identify who is responsible for meeting each one and how they prove it. Check the long-stop date, extensions and the consequences if the condition is not met. For a detailed analysis of key conditions, seeking assistance from joint venture agreement lawyers can be extensively helpful.
6. What Happens To Employees, Contracts, Intellectual Property and Personal Information?
These should be specified in terms of how these important relationships and assets are treated after completion. Consider employment contracts, annual leave, long service leave, bonuses and retention arrangements. Look for any change of control or assignment clauses in major customer contracts, supplier agreements, bank facilities and property leases. Determine if each one needs written consent before transferring ownership.
7. Who Will Own and Manage The Business After Completion?
It should be established prior to signing since there could be many implications on the control of the business from the deal. Establish who will have the shares post-completion and what percentage the shareholders will have.
Consider the make-up of the board and who can appoint/remove directors. Also consider voting rights on important decisions, including issuing more shares, selling off major assets, borrowing major amounts of funds and amending the company’s constitution.
Conclusion
Being clear about the above seven questions gives you a better understanding of the merger or acquisition and the obligations involved. It can also help create a smoother transition and support the future operations of both companies. Understanding the legal, financial and operational implications before signing can reduce uncertainty and help you avoid preventable disputes. Seeking assistance from business settlement lawyers in Perth before signing can help ensure the agreement protects your interests throughout the transaction.