New York M&A Financing Guide

The primary purpose of M&A financing in New York is to provide the necessary liquidity to execute a deal. This is particularly relevant for large-scale acquisitions, where the purchase price far exceeds the acquirer's available cash. By using external funding, acquiring companies can pursue ambitious growth strategies, expand their market presence, and realize synergies that would otherwise be unattainable.

A leveraged buyout is a financing structure in which a significant amount of borrowed money is used to acquire a target company. The assets of the acquired company are often used as collateral for the financing. In New York, LBOs are subject to a number of legal risks, most notably fraudulent conveyance. Under New York law, a transaction may be deemed a fraudulent conveyance if it is made without fair consideration and leaves the transferor insolvent or with an unreasonably small capital. This risk is particularly high in LBOs where the debt is placed on the target company, potentially harming its existing creditors.

Beyond the classic LBO, M&A financing in New York can take on several other forms, each with its own legal implications:

• Debt Financing: In this structure, the acquirer borrows funds from lenders. This can be through term loans, revolving credit facilities, or the issuance of high-yield bonds. This is the most common form of financing and is governed by loan agreements with detailed covenants.
• Equity Financing: This involves the acquirer raising capital by issuing new shares, either to strategic or financial investors. This dilutes the ownership of the existing shareholders but reduces debt-related risks.
• Hybrid Financing: A combination of debt and equity, this structure allows the acquirer to balance risk and control. Examples include convertible debt and mezzanine financing.

The due diligence process in New York must be meticulously planned and executed. Key legal checkpoints include:

• Corporate and Securities Law: Reviewing corporate records, including articles of incorporation, bylaws, and minutes from board and shareholder meetings, is essential to ensure compliance with New York's Business Corporation Law.
• Labor and Employment Law: A critical area of due diligence, as the deal structure can have significant labor implications. In a stock purchase, the buyer assumes all existing labor contracts and liabilities. In an asset purchase, the buyer has the flexibility to select which employees and contracts to assume, though it still requires careful navigation of employment laws.
• Intellectual Property (IP): IP is often a primary driver of value in an M&A deal. Due diligence must confirm the ownership, validity, and freedom from encumbrances of the target company's patents, trademarks, copyrights, and trade secrets. This is especially relevant in New York's tech and media industries.

The legal aspects of integrating workforces after a merger or acquisition are complex and often fraught with legal risk. A major focus is ensuring compliance with federal and New York state labor laws.

• Employee Contracts: Review and potentially renegotiate individual employment agreements. Be mindful of change-of-control clauses and restrictions on non-compete agreements.
• Union Agreements: In a stock acquisition, existing collective bargaining agreements typically remain in force. In an asset purchase, the new employer may be obligated to bargain with the union under the National Labor Relations Act if it qualifies as a "successor employer."
• Severance and Benefits: Comply with all applicable New York laws regarding final pay, unused vacation time, and severance agreements. Ensure proper notification is given for layoffs or plant closings under the federal WARN Act and any applicable New York State or City equivalents.