Articles Posted in Mergers & Acquisitions

AdobeStock_204199356-300x169The prospect of buying an existing business in California can be an extraordinarily exciting time for all types of people, but there will be several concerns of which a prospective business owner needs to be aware. You do not want to leap into any business venture without performing due diligence when it comes to research and preparation.

Structure Law Group, LLP is a business law firm that has offices in both Silicon Valley and Los Angeles to help focus on all kinds of business transactions and litigation for clients throughout California. When you are considering buying any business in the Golden State, be sure you are working with an experienced Los Angeles business attorney.

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AdobeStock_399603265-scaled-e1661534259751-300x195Here is a checklist for buyer’s counsel to use when conducting a legal due diligence review of intellectual property (IP) and information technology (IT) matters as part of a merger or acquisition (an M&A transaction). The checklist covers common areas of due diligence concerning intellectual property (IP) and information technology (IT) matters in relation to a merger or acquisition (an M&A transaction).

When you are preparing for any kind of M&A transaction, you will want to be sure that you retain legal counsel for assistance with many of these concerns. A Silicon Valley business law attorney with Structure Law Group, LLP can be by your side the entire time and ensure that you achieve the most favorable end result.

Common Pitfalls or Deal Breakers

Top-7-Ways-to-Avoid-Post-Closing-Merger-Litigation-1-scaled-e1656629461956-300x214Not all corporate mergers and acquisitions are amicable arrangements; most notably, the hostile takeover. There are various types of mergers and acquisitions in California. Even merger discussions that begin amicably may result in a perceivably unfair closing agreement, triggering expensive post-closing litigation. Oral promises may never translate into a written contract or diluted shareholders may protest. No matter the reason, California business litigation is often complex, time-consuming, and expensive.

The oldest and wisest way of avoiding costly post-closing M&A litigation is by anticipating and planning for the same. The experienced business litigation and M&A attorneys at Structure Law Group, LLP are familiar with the most common areas of post-closing M&A litigation and may help you avoid or greatly reduce the cost of business litigation.

Most Common Post-Closing Merger Lawsuits

AdobeStock_101676859-300x200Corporations are subject to many fiduciary rules that govern their operations. Most business persons are familiar with the prohibition on interested transactions and placing one’s own financial interests ahead of the company’s. Yet the application of this rule varies widely from state to state. The Delaware Supreme Court has recently issued a ruling that will apply to the many businesses which fall under Delaware’s state laws of corporate governance. Learn more about the standard of review for interested transactions between a controlling shareholder and their subsidiary company:

In re MFW

The litigation started with a dispute between the shareholders of M&F Worldwide (MFW). A merger was proposed between the controlling stockholder and a subsidiary company. Minority shareholders objected to the merger and brought suit to stop it. Prior case law had subjected such transactions to the stringent standard of “entire fairness.” Yet, in this case, where there were two important procedural safeguards protecting the minority interest, the Court of Chancery held that the more lenient “business judgment” standard could be applied. The ruling was appealed to the Delaware Supreme Court. Because the Supreme Court affirmed the ruling, it has created a new legal standard under Delaware law.

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There are very few aspects of business that were not affected by the COVID-19 pandemic. Supply chain issues, staffing shortages, and remote work caused immediate problems, which have experienced some relief as the public health crisis is coming under control. As a result, there are significant changes that business owners must make to accommodate our new world. Mergers and acquisitions must still be performed carefully even within the parameters of a global public health crisis. This article explores how the pandemic has affected due diligence, deal terms, and contingencies for corporate M&A in the era of COVID.

Due Diligence Issues

Due diligence requires thorough attention to often voluminous and complex details. During the pandemic, it became clear how much work could be done remotely. That said, there are still certain things that must be reviewed in person. Profit and loss statements are not reliable if they are not supported by evidence obtained through in person review of various business operations, and new technology and other tangible products must be thoroughly examined in person to assess their market viability. It is critical for business owners not to cut corners on due diligence, even with the pandemic’s limitations. Our corporate lawyers know how to develop creative solutions for meeting due diligence obligations given these limitations.

AdobeStock_414492192-300x169Secured creditors use collateral to protect their investments. Collateral can be a good form of financial protection, but the security only exists if creditors follow all legal requirements. If all legal requirements are not met, a secured creditor might not have priority over other creditors – or have no legal rights to the collateral at all. An experienced securities lawyer can help your business protect its assets by securing your transactions appropriately.

There are many ways that a creditor can gain priority over other creditors. Mortgage lenders, for example, file specific legal documents along with the recorded deed to ensure that they have a secured interest in the home if the borrower stops making required mortgage payments. These documents are made publicly available by the county recorder. As a result, the mortgage lender is able to claim priority over other claimants to the home and even secure priority in any bankruptcy proceedings the borrower might file.

The same principles apply to businesses that have a secured interest in collateral to protect their investments. Documents are drafted to conform to the Uniform Commercial Code. These “UCC filings” are then sent to the office of the Secretary of State to be recorded. These public records serve as notice to other creditors. Like a mortgage recorded at the county recorder’s office, the security is protected because other creditors have been notified that the secured creditor has priority.

AdobeStock_263358883-300x200Mergers and acquisitions are an important tool for expanding your business in the competitive field of technology. Unfortunately, hidden debts and liabilities can impose serious financial burdens on an unassuming buyer. Some buyers try to avoid this situation by purchasing assets rather than an entire company. This approach can still leave a buyer assuming debts that are secured by the assets being purchased.  When structuring a transaction as an asset purchase instead of a stock purchase, it is important to understand what debts or other liabilities exist that can become obligations of the asset buyer.

The Benefits of Structuring a Deal as an Asset Purchase Agreement

When one company acquires or merges with another company, the buyer is not only receiving the assets of the target company but also its debts and liabilities if they are not discharged prior to the sale.  The assumed debts and liabilities can even include ones that are unknown to the buyer.  If a buyer does not conduct proper due diligence prior to an acquisition, a buyer may assume liabilities that it is not aware of and courts can deem the buyer to have had “constructive knowledge” of those debts and liabilities.   Constructive knowledge is when one is presumed by law to have knowledge of a fact, regardless of whether or not one has actual knowledge of the fact, since that knowledge can be obtained by the exercise of reasonable care.

Fotolia_172702870_Subscription_Monthly_M-1-300x187COVID-19 has changed business completely, across the world, and throughout every industry. As the country slowly reopens, business is resuming again. Mergers and acquisitions will slowly begin again as business owners feel more comfortable moving forward. It is important, however, to understand the additional risks a business can face while completing a merger or acquisition during the coronavirus pandemic.

The Increased Focus on Due Diligence

Business owners always have a legal obligation to perform adequate due diligence investigations prior to completing a merger or acquisition. With the added risks of coronavirus, these investigations must be even more thorough and extensive. Purchasers must investigate and supply chain issues and potential production delays. The target company might have contractual liabilities for unfulfilled performance obligations or liability for coronavirus cases that occurred on its premises. All of these additional issues must be investigated along with the normal investigations conducted during due diligence. Business owners who fail to complete adequate due diligence investigations can be liable to shareholders for the losses a company sustains as a result.

for-sale-300x172Everyone has different reasons for starting and ending a business. Some Silicon Valley entrepreneurs start their businesses hoping to be acquired by a larger corporation. Many tech industry business owners build their enterprises with the goal of selling them, while other business owners are simply ready for a change. Whether you’re being acquired, retiring, transferring your business interest to a family member, or simply moving on, the experienced Silicon Valley business lawyers at Structure Law Group, LLP can help. From explaining tax options and consequences to fighting for the best sale price, we’re here for Silicon Valley business owners at every step. To schedule your free business law consultation with one of our experienced Silicon Valley business attorneys, call us today at 408-441-7500 or contact us online.

Step 1: Finding a Buyer & Negotiating a Sale Price

 Most clients looking to sell their businesses have a buyer lined up and a ballpark sale price in mind. However, a sale can fall apart in the details. For example, do you own a patent associated with your business that’s necessary for operation? Do you have financial investors who own a share of your company? Are there any outstanding contracts or liabilities the new owner should be aware of? Always take the following into consideration when negotiating a sale price:

AdobeStock_119342156-300x200Selling your business can be an exciting time. An acquisition can represent a new stage of growth for a company. However, a poorly drafted acquisition agreement can also jeopardize the legal and financial interests of business owners who do not adequately prepare for such an event.

What Issues Should Be Studied During the Due Diligence Process?

Each business is different, and every merger or acquisition requires a host of critical issues to be examined by both buyers and sellers.  Here are some – but of course not all – of the issues that must be addressed: