In the event that an individual desires to commence a business venture within the jurisdiction of Bangladesh, they possess two viable options: namely, the establishment of a business from the ground up or the acquisition of an existing business entity. Mergers and Acquisitions (M&A) is a legal process through which an individual or entity may lawfully acquire a business entity or enhance the scope of their current business operations.
In the contemporary realm of commerce, the import of mergers and acquisitions (M&A) is steadily escalating on a global scale. Notwithstanding the nascent nature of the M&A concept in Bangladesh, it is worth noting that we have recently witnessed a number of M&A transactions, most notably the merger between Robi Axiata and Airtel Bangladesh in the Telecommunication sector. This occurrence serves to demonstrate the potentiality of M&A activities within the jurisdiction of Bangladesh.
Numerous mergers and acquisitions have transpired in the jurisdiction of Bangladesh, specifically involving the affiliated entities belonging to the conglomerate known as the Group of Companies. In Bangladesh, it is important to note that there does not exist a singular codified comprehensive law specifically addressing matters pertaining to mergers and acquisitions (M&A). Nevertheless, it is imperative to recognize the presence of various regulatory and general laws that effectively govern the realm of M&A activities within the jurisdiction.
The outcome, whether favorable or unfavorable, of mergers and acquisitions hinges significantly upon the thorough examination of legal matters, commonly known as legal due diligence. In this intricate process, a lawyer assumes a crucial and indispensable role.
What does Mergers and Acquisitions mean?
Mergers and Acquisitions, hereinafter referred to as “M&A,” are legally recognized strategic options available to businesses seeking growth and expansion by means of generating synergistic effects. The synergies are engendered through the process of consolidating the assets of the respective companies and judiciously optimizing their available resources.
A merger, as defined, pertains to the amalgamation of two distinct corporate entities through a voluntary fusion process. In this process, one company shall prevail, while the other shall forfeit its separate existence by means of transferring all of its assets and liabilities. On the contrary, an acquisition transpires when a company procures the controlling interest in the share capital of a preexisting company.
In this scenario, it is possible for both entities to undergo a process of consolidation, thereby merging into a singular entity that will function as a unified company. Alternatively, the target company may continue to operate as an independent entity subsequent to the acquisition.
Stages in Mergers and Acquisitions deal
The M&A process necessitates adherence to specific stages. The essential phases involved in the successful culmination of a merger and acquisition transaction encompass the meticulous assessment of business valuation, strategic marketing, scrupulous scrutiny of potential buyers, astute negotiation of terms, comprehensive due diligence, and ultimately, the consummation of the transaction.
The due diligence process encompasses a comprehensive examination of the seller’s documents, contractual relationships, operating history, and organizational structure, with a focus on legal, financial, and strategic aspects.
The concept of due diligence transcends mere procedural formalities; it serves as a litmus test to ascertain the veracity of the underlying factors that propel the transaction and render it alluring to the involved parties, distinguishing between genuine substance and deceptive appearances.
Importance of Legal Due Diligence
The outcome, whether favorable or unfavorable, of a merger and acquisition transaction is typically contingent upon the thorough examination and assessment of both financial and legal matters. There exist two distinct categories of laws governing mergers and acquisitions, namely general laws and regulatory laws.
Prior to engaging in the acquisition or assumption of any business, it is imperative that one exercises due diligence in thoroughly evaluating the industry-specific regulatory statutes. In the event that two telecommunication companies express an intention to merge, it is imperative that they seek and obtain the requisite approval from the esteemed Bangladesh Telecommunication Regulatory Commission (BTRC). Conversely, should two Banks/Non-Banking Financial Corporations contemplate a merger, it is incumbent upon them to secure the necessary permission in advance from the esteemed Bangladesh Bank.
The aforementioned M&A deal must adhere to a set of legal statutes, namely the Competition Act 2012, the Environment Conservation Act 1995, the Environment Court Act 2010, the Forest Act 1927, the Bangladesh Labor Act 2006, the Foreign Exchange Regulations Act 1947, the Bank Company Act 1991, and the Companies Act 1994.
Pursuant to the provisions set forth in Sections 228 and 229 of the Companies Act 1994, it is imperative to obtain the requisite authorization from the Court in order to proceed with the advancement of the merger and acquisition transaction. Notwithstanding, it is imperative to note that the esteemed Court has adopted a stance that is akin to that of a supervisory nature, particularly in circumstances where the regulatory entity has granted its consent. In such instances, the Court shall diligently scrutinize and safeguard the interests of all relevant stakeholders.
Furthermore, it is imperative that the attorneys representing the purchasing entity thoroughly examine additional significant matters. These matters include determining whether the transferring entity possesses any legal or financial obligations, as well as any ongoing litigation pending before any court within the jurisdiction of Bangladesh.
The transferee company must diligently undertake the examination of voluminous documentation in order to ensure the successful consummation of the merger and acquisition transaction. As per the aforementioned request, it is imperative to obtain and review all pertinent corporate documentation pertaining to the seller, including but not limited to the certificate of incorporation, any and all amendments thereto, minutes books containing resolutions, and the most up-to-date shareholder list. Additionally, it is crucial to procure and examine any contracts that impose restrictions on the sale or transfer of shares of the company, such as buy/sell agreements, subscription agreements, offeree questionnaires, or contractual rights of first refusal.
All agreements pertaining to the entitlement to acquire shares, including but not limited to stock options or warrants; any agreements of pledge entered into by an individual shareholder in relation to the seller’s shares; and all agreements entered into with employees.
As an attorney, it is important to acknowledge that Bangladesh, being classified as a developing country, possesses significant potential for the growth and expansion of its mergers and acquisitions (M&A) sector. However, it is crucial to note that the corporate culture within the jurisdiction has not yet attained a level of maturity that is deemed sufficient. The presence of limited regulatory barriers pertaining to mergers and acquisitions may inadvertently dissuade established entrepreneurs from pursuing business expansion endeavors.
The legal consultant/in-house lawyer holds significant potential in establishing a conducive legal atmosphere for mergers and acquisitions within the jurisdiction of Bangladesh.