Mergers and Acquisitions in Latvia

Introduction

Although Latvia is a small country with a population of 2 million, it has an economy that is rapidly growing and developing. In the past few years, Latvia has seen an increase in mergers and acquisitions, as well.

The most popular M&A strategy in Latvia is the acquisition of smaller companies by larger ones. This can be explained by the fact that large companies are looking to enter new markets or expand their business into new areas, while local businesses are looking for help to grow their company faster than they could on their own or their businesses has reached the maturity requiring the international integration.

The article below briefly describes what the Mergers and Acquisitions are, what are the activities and how we can help your plans to develop your business.

What is a Merger or Acquisition?

A merger or acquisition (M&A) is the business practice of combining two or more entities, such as companies, to form a new company. A merger is the joining of two companies. An acquisition is when one company purchases another company. An acquisition is when a company buys another company and merges it with their own, while a merger may not involve any purchase at all and could be between two different companies that are similar in size or type of business.

Mergers and acquisitions are a common business practice that companies use to grow their market share. When a company acquires another company, it often means that the acquiring company will take on the name of the company it has acquired.

What are the Benefits of Mergers and Acquisitions?

Companies merge for many reasons. One of the most popular reasons is to create a monopoly to eliminate competition. Another reason is to acquire a company’s resources in order to grow more quickly. Companies merge in order to expand their markets, enter new markets, or become more competitive in their current markets. They also do it to gain access to new resources and technologies that they may not have been able to afford on their own.

Mergers and acquisitions can be beneficial for companies, but they can also hurt them. The company that acquires another company may end up spending more money than they would have if they had not acquired the other company. This is because the acquiring company has to pay off debts that the other company has, as well as make sure that the employees are taken care of.

Mergers and acquisitions are important for growth and expansion of companies. It is an effective way to create value for shareholders by combining two or more business entities.

As mentioned before the foreign companies usually acquires the Latvian companies in order to enter into the Baltics market (e.g. buying distribution or manufacturing companies), gain new resources (IT companies) or probably investing in cash generating companies (real estate).

What are the Phases of Mergers and Acquisitions?

The process can be broken down into the following three phases: Pre-deal,

Phase I: Pre-deal

Pre-deal activities include:

Engaging in tax, legal and finance due diligence –
Preparing pro forma financial statements and valuation
drafting merger agreement-
management meetings to discuss how a merger will affect the company

The deal negotiation phase is crucial in the process of mergers and acquisitions. The process starts with the exploration phase, where a company analyzes its own resources, capabilities, strengths, weaknesses, opportunities and threats to identify whether it should pursue a merger or acquisition. The next step is the due diligence phase where both parties find out about each other’s company and decide on a potential deal. If there is agreement on all aspects of the potential merger or acquisition, then the two companies enter into contract negotiations to work out the final details.

These activities are usually done by the tax, legal and finance team to make sure that the company is not committing to an agreement that it cannot afford. It is important for companies to understand what pre-deal activities they will be doing and when they will be doing them. It is also important for companies to understand what their potential investors will want them to do during this phase of the investment process.

Phase II- Deal Negotiation & Execution

The phase II of the deal negotiation and execution process is where the parties will come to an agreement on the terms of the deal.

This phase can be divided into two parts:

Deal Negotiation: The deal negotiation execution phase is the process of implementing the terms of an agreement after a merger or acquisition. This includes negotiating and executing contracts, managing integration, and dealing with post-transaction issues.
Deal Execution: Deal execution involves closing the transaction, filing with public authorities and all the required paperwork will be completed.

Phase III- Post-deal

The post-deal phase is the period of time after a company has acquired another company. This stage is crucial to the success of the deal and it’s important that companies plan for this stage in advance.

Post-deal phase includes:

selecting and appointing executives who are capable enough to run the newly acquired company
preparing a plan for integrating both companies
developing a long term strategy for the newly acquired company
managing any conflicts that arise with employees and customers