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A Lawyer’s Guide to Interstate Mergers and Acquisitions

The allure of growth through mergers and acquisitions (M&A) often entices companies to expand their reach. While 2023, expected to be a booming year for M&A, didn’t entirely turn out as it should, businesses are still hopeful. Valuation multiples have undergone a downward adjustment, declining from their high points in 2021. This decline is occurring alongside a trend where buyers are currently concentrating on less extensive acquisitions. This shift is due mainly to elevated interest rates and substantial reserves of unused capital.
Nevertheless, there are indications of renewed activity in the investment banking sector. Specifically, Morgan Stanley forecasted an increase in select merger and acquisition activities.
Apart from cross-border deals, interstate agreements are also getting good consideration from investors. However, interstate M&A activities can be a complex and labyrinthine process, fraught with numerous legal considerations. 
Lawyer’s Guide to Interstate M&As
For lawyers aiding their clients through this intricate journey, it’s imperative to have a detailed roadmap. 
Understand state laws and regulations
Before diving into an interstate merger or acquisition, one of the first steps is understanding the state laws governing these transactions. Each state has its unique set of regulations, often outlined in its Business Corporation Act or similar legislation.

Domestic and foreign entities: Laws may differ based on whether the companies involved are domestic (originating in the state) or foreign (from another state). For instance, you plan on starting an LLC in Arizona and merging it with a corporation in another state. You must understand Arizona’s specific regulations on both LLCs and mergers. This will help you navigate the legal landscape efficiently and ensure you comply with state-specific regulations.
State filing requirements: Note various filing requirements like articles of merger or certificates of formation you must submit to the Secretary of State’s office. Ensuring all required paperwork is filed accurately and promptly can expedite the merger process. It also reduces the likelihood of regulatory hiccups.
State approval: State approval is often a prerequisite for completing a merger or acquisition, particularly in heavily regulated industries like utilities. States may require advance authorization from relevant government agencies to ensure the deal is in the public’s best interest. This approval can prevent potential roadblocks and facilitate a smoother transition for both entities involved.

Do due diligence
Due diligence is crucial for both the acquiring and acquired companies. This process involves a comprehensive review of the target company’s financials, intellectual property, and contracts. Lawyers play a key role here, meticulously examining these details to assess liabilities and ensure compliance. 
They should conduct a full legal audit to reveal any existing or potential legal problems like litigation or contractual disputes. It’s also their responsibility to ensure the target company complies with federal and state regulations, including environmental, employment, and antitrust laws.
In 2021, one of the high-profile M&A deals that faced legal challenges was the proposed acquisition of Plaid by Visa. Announced in 2020 for $5.3 billion, the deal aimed to combine Visa’s extensive payment platform with Plaid’s financial services APIs. 
However, the US Department of Justice (DOJ) filed a lawsuit in November 2020. The DOJ claimed the acquisition would violate antitrust laws by eliminating Plaid as a competitive threat to Visa.
Facing mounting legal pressures and uncertainties, both companies announced in January 2021 that they had mutually agreed to terminate the acquisition. The legal dispute, in this case, not only halted the transaction but also underscored the heightened regulatory scrutiny facing M&A activities. 
Know fiduciary duties
Fiduciary duties in M&A transactions are often a complex tapestry brought to life from the threads of loyalty, good faith, and care. Lawyers must know the fiduciary duties of both the buyer and the seller.
For example, the Board of Directors must act in the best interest of the shareholders. This often involves a ‘Revlon Duty‘ in sale situations. It requires the board to seek the highest value reasonably available to shareholders. 
Similarly, shareholders may have the right to vote on an acquisition. Failure to respect their rights can result in legal complications.
Finalize deal closures
As a merger or acquisition nears completion, attorneys play a critical role in attending to the details that facilitate a smooth deal closure. One of the primary tasks is the execution of agreements.
Lawyers must ensure that all contracts are signed by the concerned parties and adhere to the requisite legal standards. This step is crucial for establishing the transaction’s legitimacy and mitigating future legal risks. 
Following this, obtaining approvals is the next pivotal action item. Attorneys must gather all required endorsements from regulatory bodies, shareholders, and other stakeholders. This is essential for legal compliance and fortifying the deal against potential challenges or disputes. 
Finally, public announcements require careful planning. Legal teams should coordinate the timing and content of any disclosures to the public. They must ensure they are in line with both state and federal regulations. This announcement helps maintain transparency and safeguards against unintended legal consequences. 
Ensure a Legally Sound Interstate M&A
Navigating the complexities of interstate mergers and acquisitions is no small feat. The steps mentioned are non-negotiable for lawyers to ensure a successful, legally compliant transaction.
As a legal practitioner, you must keep your finger on the pulse of dynamic regulations. It’s a must to stay proactive in guiding their clients through the legal intricacies involved. In doing so, you’ll secure a successful transaction and fortify your reputation as a knowledgeable and reliable legal advisor.

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