The importance of Legal Due Diligence for Mergers and Acquisitions in Bangladesh.


If anyone wants to start a business in Bangladesh, they can either build up a business or purchase a business entity. Mergers and Acquisitions (M&A) is the mechanism by which one can purchase a business entity or expand their existing business. In modern business world the significance of M&A is growing gradually around the world. Even though the concept of M&A is new in Bangladesh we have recently experienced few M&A deals especially merger of Robi Axiata and Airtel Bangladesh in Telecommunication sector show us the possibility in Bangladesh. Many of the M&A deals happened in Bangladesh within the sister concerns of the Group of Companies. There is no single codified comprehensive law in Bangladesh that deals with M&A however there are different regulatory and general laws which regulate the M&A. The success or failure of M&A is largely dependent on legal due diligence where a lawyer plays a vital role in the process of M&A.

What does Mergers and Acquisitions mean?
Mergers and Acquisitions are strategic options for growing and expanding business through creating synergies. The synergies are created by consolidating the assets of the companies and optimizing their resources. Merger means combination of two different companies and it is voluntary fusion where one company survives and the other company will lose its entity by transferring all its assets and liabilities. On the other hand Acquisition occur when one company purchase the controlling interest in the share capital of an existing company. Here both the companies may be consolidated to form and operate as a single company, or the target company may operate as a separate company after acquisition.

Stages in M&A deal
There are certain stages follow in M&A process. The key stages in completion of a M&A deal are business valuation, marketing, buyer screening, deal negotiation, due diligence and closing the deal. The due diligence process involves legal, financial and strategic review of all of the seller’s documents, contractual relationships, operating history, and organizational structure. Due diligence is not just a process; it is also a reality test—a test of whether the factors that are driving the deal and making it look attractive to the parties are real or illusory.

Importance of Legal Due Diligence
The success or failure of M&A deal is generally depended on financial and legal due diligence. There are two types of laws regulating M&A deal that are general laws and regulatory laws. Before going to purchase or take over any business one must carefully consider industry specific regulatory laws. For example if two telecommunication companies want to merge they have to take prior approval from Bangladesh Telecommunication Regulatory Commission (BTRC) and on the other hand if two Banks/ Non-Banking Financial Corporation want to merge they must get prior permission from Bangladesh Bank. The general laws that need to comply for M&A deal are: 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. More specifically, Sections 228 and 229 of the Companies Act 1994 cover with required sanction from the Court to advance M&A deal further. However, the approach taken by our Honourable Court is more likely supervisory role when the regulatory body has given their consent and the Court will look into the interest of stakeholders.

Moreover there are other important issues need be to carefully scrutinize by the lawyers of the concern buyer company are whether the transferor company has any legal/ financial liabilities or any suit pending before any Court of Bangladesh. There are huge documents required to examine by the transferee company for M&A deal to become successful. For example, all corporate records of the seller, such as certificate of incorporation and all amendment, minutes books including resolution, current shareholder list; all contracts restricting 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 for the right to purchase shares, such as stock options or warrants; any pledge agreements by an individual shareholder involving the seller’s shares; and all the employee agreements.

Bangladesh as a developing country has huge possibility to grow up M&A sector even though the corporate culture has not yet matured enough. Few regulatory barriers for M&A also discourage the established entrepreneurs for business growth.  The role of legal consultant/ inhouse-lawyer can play a vital role in creating M&A friendly legal environment in Bangladesh.

Barrister-at-Law, Lincoln’s Inn
Advocate, Supreme Court of Bangladesh

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