Mock M&A Case Study: Analysis

[Amma Usman]

Hello everyone! I hope you’re all having a fantastic day. We’re entering the season of assessment centres (ACs) at law firms, and a hot topic for many of these ACs is Mergers & Acquisitions (M&A)! So, in this thread, I’ll be guiding you through a short fictitious M&A case study and highlighting the critical aspects you should be mindful of in preparation for case studies.


First, a few key terms to familiarise yourself with: CLICK HERE


Case Study: Acquisition of Innov8 Ltd. by QuantumCore Inc.


QuantumCore Inc., a US-based data management company, is looking to acquire Innov8 Ltd., a UK-based technology company specialising in cloud computing solutions. The acquisition will allow QuantumCore to expand its technological capabilities and customer base in the European market.


Key Facts

1. Innov8 Ltd. is a private company with a strong IP portfolio. It has 300 employees, mainly software developers, and has been growing rapidly over the past 4 years.

2. QuantumCore Inc. has a global presence but lacks expertise in cloud technology. This acquisition would be strategically significant to enhance their service offering.

3. Concerns exist regarding regulatory approval, particularly from the UK Competition and Markets Authority (CMA), due to the potential impact on market competition.

4. A few key shareholders of Innov8 Ltd. are resistant to the acquisition as they believe the company can grow significantly without selling.

5. Innov8 Ltd. has some outstanding legal issues, including an ongoing employment dispute and unresolved IP claims regarding one of their cloud software solutions.

6. Rumours suggest a rival tech company is also interested in acquiring Innov8 Ltd., which could lead to a potential bidding war.



Your Task: Present your advice to the client (QuantumCore Inc.) on whether to proceed with the acquisition and how to address the legal and commercial risks.



My Analysis: Acquisition of Innov8 Ltd. by QuantumCore Inc.


Due Diligence

First of all—due diligence. This is essential. A necessary first step. The law firm will need to know more about the specifics of Innov8 Ltd.’s internal operations to determine if it’s worth buying. Essentially, checks will be carried out on the company’s financial and legal health, among other considerations.

For example, if Innov8 Ltd. has an unstable cash flow or if an important financial statement is absent (note: this will rarely be the case as public companies are required by law to publish certain statements), a red flag exists. Thus, financial health is a key consideration for firms when acquisition talks are on the table.

It’s also worth noting that sometimes acquisitions can occur even when companies do not have the ‘highest’ or most ‘desirable’ revenues. This is because distressed acquisitions mean that the acquiring company can turn things around and make more profit by implementing new internal strategies, introducing the latest technologies, investigating market deficiencies, and catering to those needs.

Now, you will remember from the facts that Innov8 Ltd. is undergoing an employment dispute. It is necessary to uncover the true extent of this dispute. How serious is it? Is Innov8 Ltd. likely to win? Even if they are likely to win, the chances of succeeding in a litigation claim can change instantly with new facts. How do we know the other party doesn’t have more evidence on the way? Given these risks, the lawyers on QuantumCore Inc.’s side will consider advising a lower valuation of the deal based on this complication.

There also exists the issue, as we have seen from the facts, of unresolved IP claims regarding one of Innov8 Ltd.’s cloud software solutions. Have they infringed any IP rights? Do they truly have ownership of their intellectual property? Are there challengers to this ownership? If challengers exist, what is their basis? Is it strong enough to warrant ongoing litigation? If yes, can QuantumCore Inc. afford such litigation post-acquisition? The risks are significant for QuantumCore Inc. because they will be managing one more business alongside their existing operations. Additional costs are always scrutinized, especially if they could be avoided from the start.

All these concerns may lengthen the time gap between negotiations and closing. Is this time expense worth it? Businesses want to make money, and the longer it takes to complete the deal, the more money is lost. Nevertheless, such checks are necessary to ensure that the continuous and sustained progression of profits post-acquisition is not hindered by ongoing litigation.


Competition Concerns

Antitrust laws exist to ensure that M&A activity does not create excess competition in the market. If smaller tech companies are unable to float due to the strong market dominance caused by this M&A deal, the CMA (the primary body of enforcing antitrust laws in the UK) will correct this market error.

Lawyers will consider any competition-related risks and advise accordingly.


Regulatory Concerns

The tech industry is one that is highly regulated, largely because there are a lot of new and upcoming discoveries that have never existed before. When there are new discoveries, new laws need to be enforced to ensure smooth functioning within the wider industry. The deal will need to comply with the regulatory standards unique to the industry and other data protection legislation.


Shareholder Concerns

We are told some shareholders do not want to go ahead with the purchase. Why? We are told they believe the company can grow without the acquisition. Is this the only reason? What methods can be implemented to understand their concerns and positions better? Would an earn-out payment structure please them more? What if they are offered equity in the new business—would that please them? Communicating with the shareholders is a crucial step here.


External Bidders

If a new tech company wants to purchase Innov8 Ltd., should QuantumCore Inc. offer a higher purchase price? Can the company afford this? Will the shareholders allow this given their existing resistant position? Will drag-along or tag-along rights be enforced?

Should QuantumCore Inc. just walk away from the deal completely?

An exclusivity agreement may be offered here to ensure Innov8 Ltd. entertains purchase talks from solely QuantumCore Inc. for a specified period. The lawyers on QuantumCore Inc.’s side will need to explore the possibility of enforcing this.

A bidding war is not necessarily advantageous from QuantumCore Inc.’s perspective, as a higher price is undesirable for any business. Businesses want to buy good quality things as cheaply as possible. Competing with another company for Innov8 Ltd. may also lead to unwanted deal terms arising from the contract, as the pursuit for the target places both interested acquirers in a position of unequal bargaining power.


Post-Acquisition Concerns

It’s necessary to explore the legal and operational concerns for successfully integrating Innov8 Ltd.’s workers, IP, and technology into QuantumCore Inc..


Jurisdiction-Related Challenges

One company is based in the US, while the other is in the UK. The differences in laws and regulations, and their subsequent consequences on the viability of the transaction, will need to be analysed in depth.


Additional Discussion Topics

• Balance the need for QuantumCore Inc. to expand its technology offerings with the costs and risks of the acquisition.
• Look at QuantumCore Inc.s business plan. Evaluate the commercial implications of proceeding with the acquisition and the subsequent viability of this.

Deal Structure

How will the deal be structured? Asset Purchase or Share Purchase? This will determine whether an SPA or APA will be drafted.

Here, you will discuss the implications of both and decide which is most appropriate given the facts.

A share purchase will allow QuantumCore Inc. to gain equity in Innov8 Ltd., which is desirable, especially if they later own a majority stake in the business. This would allow them to have a greater say in executive decisions. At the same time, they inherit all the assets and liabilities. If the liabilities are greater than the benefits of running the business, this is a red flag. If the shareholders also have “unlimited liability,” this is not good because their liability is not limited to the price of their shares—the money they initially invested. This is quite risky.

An asset purchase overcomes the obstacles of liability uncovered by a share acquisition. It allows for cherry-picking the profitable divisions of Innov8 Ltd. However, many rules govern the transfer of assets, which can also lead to a time lag.


Valuation Methods

Next, discuss how Innov8 Ltd. will be valued.

A Comparable Company Analysis (CCA) will allow the price of the company to be judged based on similar prices seen by competitors in the market.

Looking at Precedent Transactions (PCs) will allow for the valuation to occur based on past similar M&A deals in the market.


Warranties and Indemnities

Warranties represent overarching representations regarding the overall condition and operational integrity of a company. They serve as a broad classification encompassing various potential risks that could affect the business. Conversely, indemnities are explicit commitments pertaining to particular losses, wherein the seller agrees to compensate the buyer for specified contingencies if those conditions are not satisfied.

In the context of our case study, indemnities are more appropriate for addressing employment disputes and unresolved intellectual property claims. Employment disputes often involve specific liabilities that can lead to quantifiable financial losses, making indemnities suitable as they directly address these particular risks. Similarly, unresolved intellectual property claims can result in substantial damages or liabilities that the buyer may incur. By utilising indemnities, the seller can provide assurance to the buyer that they will be compensated for any losses arising from these specified issues, thus effectively managing risk in the transaction.

Industry Trends

Discuss how industry trends impact this deal now or in the future. What happens when ESG is taken into account? There are 300 workers; if QuantumCore Inc. lets go of a few to take advantage of cost synergies, would this impact the company’s ESG credentials? Are there any ESG laws that need to be adhered to?

Does the target company produce any AI? If so, is it in line with the requirements of the relevant regulations? It is essential to note that while one business operates in the UK, retained EU law still exists post-Brexit. This means that we must consider the implications of both UK and EU regulations.

In the tech sphere, factors such as the rise of the EU AI Act become crucial. Although this act was introduced after Brexit, any subsidiary company in the EU that QuantumCore Inc. manages may still need to comply with EU laws. Therefore, it’s important to consider how these regulations impact the target company and the broader implications for the acquisition.

Tax Considerations

Deals from across the world warrant different tax implications. The UK and US have different systems, and the cross-border influence on minimizing the impact of this must be considered.

Non-Compete and Non-Solicitation Agreements

Protect QuantumCore Inc. by ensuring that skilled workers are not quitting to go elsewhere, or that Innov8 Ltd. doesn’t go and start up a similar competing business.


Finally, summarise your overall advice—should QuantumCore Inc. proceed, and if so, under what conditions?


Key Takeaways and General Advice

Take your time with M&A case studies. Some law firms will give you 20-40 minutes to read a case study and come up with a presentation, which can feel like a time crunch. However, be patient and don’t get overwhelmed too quickly. You will find that many hidden facts exist that can help you create a stellar analysis. Again, avoid the pressure to know everything in time for your assessment center (AC). This anxiety can make you more nervous and throw you off guard. You possess significant potential and knowledge; let that shine through. Law firms don’t expect you to have knowledge comparable to a Partner with decades of experience. Many candidates will be straight from university with little to no company law foundations. The knowledge will come, no doubt about that. Just give yourself patience and resilience, and you will get there.

Conclusions

Thank you for taking the time to read through this guide. I hope it has been helpful, and please feel free to drop any questions; I, or another member of the forum, will be here to assist.

The discussion is also intended to be interactive, so share any thoughts you may have as well!

 

[futuretcholder]

Hi @Amma Usman Thank you for sharing your insight on this case study. I just had a few follow up questions if that's alright.

Firstly, if I made a recomendation, and the partner interviewing keeps pushing my answer, iis it best to stand my ground.

Secondly, is there a right or wrong answer to this? Can my answer be more specific like, proceed but with an asset sale excluding the asset that is currently going through litigation?

 

[Amma Usman]

Hi @Amma Usman Thank you for sharing your insight on this case study. I just had a few follow up questions if that's alright.

Firstly, if I made a recomendation, and the partner interviewing keeps pushing my answer, iis it best to stand my ground.

Secondly, is there a right or wrong answer to this? Can my answer be more specific like, proceed but with an asset sale excluding the asset that is currently going through litigation?

Hey @futuretcholder , thanks for your questions.

1. With this question, it really depends. If your answer is objectively incorrect and you know this yourself, then there is no point pushing. One of the key skills of a lawyer is versatility - the ability to change your reasoning when presented with new facts. Often times, a partner would even find it more admirable when you are able to think on the spot and come up with new thoughts based on their own perspectives. That said, be mindful of too quickly changing your opinion when a partner challenges you. This is one of the fun parts of an interview - seeing if you can support your point when challenged. During times like this, one needs to be mindful of how they come across as it’s a thin line between being polite and getting your views across vs. coming across as argumentative.

2. I like your thoughts on this. Proceeding with an asset sale excluding the asset undergoing litigation could very well be an answer, but its also worth noting that indirectly this means majority of the business is being acquired - in other words, a share purchase may be more appropriate. This is because it is clear that a vast majority of the business would undergo M&A activity. It all depends on how you argue your point. You could recommend a share purchase - outright acquisition of all the shares of the company, but suggest ways to limit the effects of the litigation. If from the outset, the litigation could severely outweigh all the benefits of acquiring the company, perhaps the deal shouldn’t even proceed at all.

 

[Legalstalker]

Hi @Amma Usman

I have read this case study many times and find it very useful. It really shows that you need to look at the bigger picture and use basic common sense that could easily be overlooked.

Would you be willing to upload any more case studies? Maybe with different concerns/risks or a different practice area? Competition or PE?

Is it common for US firms to stick to M&A case studies? I have only been exposed to these, but surely there are different case study areas firms use. especially in written exercises. I can orally state my findings, but writing them down is much harder.

 

[Amma Usman]

Hi @Legalstalker ,

I'm glad to hear you found the case study insightful! I’ll happily upload another one within the next few weeks to keep the conversation going and share further insights.

Across firms, especially those with strong transactional practices, topics like this tend to be recurrent themes. Whether it’s the core focus of a case study or comes up in lighter discussions within an article, it’s often explored. For these firms, understanding the basics of M&A – from the structure of a deal, key terminology, and associated risks to effective due diligence strategies – is crucial. They look for candidates who can grasp the foundational aspects of their work, which often ties back to M&A fundamentals.

I completely understand the challenge of translating findings effectively onto paper. Personally, refining my approach to structuring these assessments was a game-changer. Many assessment centres (ACs) require candidates to draft client reports highlighting primary risks and opportunities. Instead of packing the report with detailed information, focusing on concise bullet points with short explanations is typically more effective. In the business world, especially when working with clients, time management is critical, so learning to communicate succinctly and get straight to the point is invaluable.

Once you have the structure in place, practice becomes key. Writing these assessments under timed conditions is a great way to build endurance, allowing you to quickly process and address recurring themes when they arise during the actual ACs. Repeating this step helps you develop speed and precision, both of which are essential in high-stakes environments.

This approach was instrumental in helping me succeed with ACs, and I hope it proves helpful for you too! Let me know if there’s anything else you’d like to discuss or if you have more questions.