Mediation in Mergers and Acquisitions- An Alternative Dispute Resolution Technique

                                               MEDIATION IN MERGER & ACQUISITION 

Mediation in Mergers and Acquisitions- An Alternative Dispute Resolution Technique 

Author: Akaash Nandwani

What are Mergers and Acquisitions? -Mediation in Mergers and Acquisitions- An Alternative Dispute Resolution Technique 

To state it broadly, Mergers and Acquisitions (M&A) are corporate actions where companies join hands to jointly serve society and meet business requirements. 

Both, Mergers and Acquisitions (M&A) result in the formation of a single entity. Earlier, M&A was judged as a manifestation of incompetent management but now the trend has evolved and most companies enter into M&A transactions voluntarily to gain market share, enjoy tax benefits, emerge as a bigger player, etc. 

Mergers mean and include the unification of two separate companies/ entities into one unit. For example, two quick commerce platforms, Zomato and Blinkit, merged with each other to meet the market needs, combine resources and reduce operating costs. Mergers bring significant resources to a common table. Vodafone and Idea merged into Vi to fight the competition.

 Whereas Acquisition (also known as hostile takeover) is a situation where one company buys the other and generally, the latter company loses its identity to the former. For example, recently Reliance Industries acquired (bought) a 100% stake in Lotus Chocolates. 



ADR Mechanism in M&A-Mediation in Mergers and Acquisitions- An Alternative Dispute Resolution Technique 

 Klaus Sachs, a German arbitrator specialist, once wrote, “Nowadays, ADR agreements in national and international M&A disputes are rather the rule than the exception”. Parties resort to ADR instead of Court proceedings because: 

 Parties have the liberty to choose arbitrators/mediators specializing in the desired fields, whereas the same is not true in the judicial process. 

 ADR proceedings happen in business-like situations eliminating complex judicial processes and time involved. 

 Businesses subject, such as M&A, choose ADR as it ensures confidentiality which abstains the competitor/ rival to take any undue advantage. Confidentiality is generally compromised in court/ tribunal proceedings. 

Negotiation: In this method, both parties to the M&A agreement directly negotiate with each other without the intervention of any third party and aim to reach a conclusion by themselves. The negotiation process starts right when One Party/ Company proposes its offer to the Target Company. 

Sometimes negotiation fails the whole agreement of Merger & Acquisition as both parties keep their interest superior to the other party’s interest and there are fewer chances of a successful merger or beneficial acquisition. 

Mediation: Mediation in the case of M&A agreements involve a neutral third party (i.e. Mediator) working in the interest of both parties to the mediation agreement intending to facilitate the same with the aim that parties finally reach a settlement. Mediator uses his/ her experience to facilitate dialogue between parties. 

Conciliation: The conciliation process involves the appointment of a neutral third party whose main aim is to seek concessions from both parties while in independent caucuses. 

Conciliation in M&A agreements/ contracts is found to be unsuccessful as there is a lack of communication between parties and there is less emotional and mental involvement of the parties to the deal. 


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Role of Mediation in M&A - Mediation in Mergers and Acquisitions- An Alternative Dispute Resolution Technique 

The essence of mediation is the involvement of a Mediator who is a neutral third party, which implies that the success or failure of an M&A agreement is immaterial to the mediator and his only intent is to facilitate communication between parties through his experience on the subject. The mediator ensures a successful dialogue between the parties and is duty-bound to guide the parties to an M&A agreement whenever such a need arises during the course of proceedings before him. 

Is M&A dispute right for Mediation- Mediation in Mergers and Acquisitions- An Alternative Dispute Resolution Technique 

M&A disputes are fit to be resolved in mediation as those disputes essentially arise out of some business transactions and thereby require secrecy and confidentiality to be maintained so that no business rival can take undue and unfair advantage of the same. 

The court process, deprived of this feature of confidentiality is quite unsuitable for the parties. Arbitration seems to be another resort as it also ensures confidentiality but it involves more costs as compared to mediation and also, arbitral proceedings pass an Award, which means ‘consent’ is not ensured and this might be prejudicial to any party involved. 

It is also true to say that businesses run on voluntary agreements and enforcement of an award, especially in the case of M&A is not a solution. Mediation is also preferred over arbitration and Judicial Process as it involves less time and settlement arrived is the ‘final settlement’ and settles the dispute once and for all which is most desirable in M&A as party/ firm/ company acquiring another will never wish to first settle through ADR methods and then fight in Courts and tribunals for the same. 


Read the Article: Mediation in Land Encroachment Disputes

Read the Article: Private Mediation Vs Court Annexed Mediation


Private Mediation in M&A dispute- Mediation in Mergers and Acquisitions- An Alternative Dispute Resolution Technique 

Private Mediation in M&A is a relatively new and more advanced process as compared to conventional mediation. It allows parties to approach the Mediator directly without going to court and then letting the court refer the case for Mediation.

Moreover, it allows parties to choose a mediator amicably and fix a place for their mediation proceedings. All these are absent in court-annexed M&A proceedings. 

Further, it completely eliminates the risk of leaking the information to the competitors and since it is a private process, it includes consent and will of both the parties to the M&A Agreement/ Contract and therefore settles the dispute, saves time and most importantly, saves the relationships. 

Advantages of Mediation in M&A - Mediation in Mergers and Acquisitions- An Alternative Dispute Resolution Technique 

Mediation has successfully emerged as a dispute redressal mechanism due to the presence of the following advantages: 

 Mediation saves time and M&A agreements essentially require speedy settlement so that parties to the agreement can enjoy the maximum benefit as desired and no outsider takes undue advantage. 

 M&A disputes generally arise due to differences as to valuation and managerial functions and here Mediation leads to settlement as it allows parties to the agreement to openly communicate their terms and conditions to each other in presence of a mediator and thereby arrive at an amicable settlement. 

 Businesses run on the foundation of good relationships built over the years and mediation is good for M&A as it resolves disputes through amicable settlement and saves those relationships as no future conflict is involved. 

Problems faced- Mediation in Mergers and Acquisitions- An Alternative Dispute Resolution Technique

ADR methods (Arbitration, Mediation, Conciliation, etc.) are voluntary agreements and thus cannot be enforced upon any party to an M&A. 

M&A Mediation agreements are drafted after parties arrive at a consensus, which is not possible in case parties don’t wish to settle their claims. 

Settlement through ADR specifically, Mediation is not possible when parties wish to drag each other into court. Settlement through ADR, particularly mediation, is not possible when parties enter into an agreement with hidden, unethical agendas to serve their personal interests. 

Conclusion - Mediation in Mergers and Acquisitions- An Alternative Dispute Resolution Technique 

ADR mechanisms, specifically Mediation being an alternative with minimum red flags and also being a system that runs less on technical and more on ethics is a good dispute redressal and Settlement mechanism nowadays preferred in case of M&A disputes as it ensures speedy and cost-efficient final settlement and also saves time & relationships of the parties involved. 

The above discussion exemplifies how mediation can result in an amicable settlement with minimal material and non-material loss to the parties and also ensure that morals are not compromised.