Acquiror Definition: Everything You Need to Know
The acquiror refers to a surviving corporation once a merger takes place and is often categorized after a business sale or acquisition.3 min read
2. Merchant Acquirer Agreements
3. Assigning Contracts in the Context of M&A Transactions
4. The Effects of the Common M&A Structures on the Assignment of the Target's Contracts
The acquiror definition refers to a surviving corporation once a merger takes place. An acquiror is often categorized after a business sale or acquisition takes place.
What Is an Acquirer or Acquiror?
An acquiror, or acquirer, is someone that acquires the rights to another business through a business deal. Acquirers will often buy out a business in order to take over its ownership, services, and contracts. The acquirer might be a financial institution or another corporation. The financial institution or corporation believes that by buying out the other business and integrating it with their own, they can gain additional profit. It is a decision that is usually agreed on by both parties; the buyer and the seller.
Merchant Acquirer Agreements
The existence of current contracts needs to be considered when acquiring a business. One of the most common third-party contracts is payment merchants. Merchant acquirer agreements involve the acquisition of a business and a third-party merchant partner. The merchant acquirer is generally a banking institution or settlement bank. The merchant is the payment method of the business and allows them to process payments via credit card. The merchant may also charge additional fees to utilize the payment processes.
Assigning Contracts in the Context of M&A Transactions
Understanding the merchant agreement is important when dealing with merger and acquisition transactions. It is necessary to evaluate the merchant contracts before acquiring a business. In some cases, contracts can be renewed and transferred unless there are stipulations against it. A merchant contract may not be transferable in the following situations:
- Contractual prohibitions on free assignability: These are often in the form of anti-assignment clauses.
- Case law prohibitions on free assignability: These often come out of public policy concerns.
Most contracts do contain an anti-assignment clause. This prevents the assignment of contract terms without the knowledge and consent of both parties involved. The exact wording may differ between contracts in the form of simple anti-assignment clauses or more complex of clauses. These anti-assignment clauses are almost always enforceable in court.
The problem, however, is that it is not always easy to obtain consent from a third-party merchant. It may initiate the following problems during the acquisition process:
- Either of the companies involved might not want the acquisition to be made public knowledge.
- The acquisition may be based on the current contracts that are already in place.
- Third-party merchants may use the situation to negotiate new contracts.
It is important to determine and evaluate anti-assignment clauses early in the contract agreement. As a general rule, any contracts that include personal rights are nontransferable or nonassignable in court without the permission of the third-party. Personal rights might include the following:
- Personal skills: This includes consulting, employment, or partnership agreements.
- Intellectual property: This includes licenses based on intellectual property.
- Additional licenses: Other licenses including copyright, trademark, and patents might also not be transferable.
The Effects of the Common M&A Structures on the Assignment of the Target's Contracts
It is necessary to also evaluate the M&A transaction structure to determine if contracts are a part of the deal. One way around this is with a reverse triangular merger. A reverse triangular merger is when the acquirer creates a subsidiary company and merges with the intended company. The acquired company remains whole and keeps its own assets, liabilities, and contracts.
The reverse triangular process generally keeps all contracts in place because the contract is not reassigned. The company is still a whole and does not become a part of the acquirer's company. Additionally, third-party consents do not need to be collected. However, due diligence is still expected in a reverse triangular transaction.
A forward triangular merger may also be used. This is when the acquirer creates a separate subsidiary and merges with the new company. The subsidiary is a survivor of the merger and collects all of the companies assets, liabilities, and contracts. Anti-assignment clauses are generally not applicable in this type of a merger, either. As always, contract due diligence is still expected, especially if the contract includes language or services that might be considered personal.
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