Articles Posted in Mergers & Acquisitions

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:

AdobeStock_83043455-300x200For many California businesses, initial public offerings are a thing of the past.  Founders of many startups now look to exit through acquisitions or asset sales. If you’re considering a merger, acquisition, or asset sale, don’t wait to prepare until you accept an offer. Properly preparing your company to minimize potential liability in a sale can take weeks or even months. Here are eight ways to prepare for an exit event in California:

  1. Consult a Corporate Attorney Now

 An experienced corporate lawyer can help you clear the way for a smooth exit transaction.  Focusing on corporate housekeeping before you enter into negotiations with a potential buyer can help to create a compelling first impression, eliminate the distraction of legal concerns that need to be addressed during negotiations, and ultimately reduce your potential liability.

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Acquisition is the goal of many Silicon Valley startups. Whether you’re selling to another owner, dispersing your assets, or merging with an industry leader, there are three main types of private acquisition structures: merger, asset acquisition, and stock acquisition. There are benefits and fallbacks to each type of acquisition, and you should work with Silicon Valley mergers and acquisitions attorney at Structure Law Group, LLP to discuss your options.

Primary Private Acquisition Considerations

While there are many unique factors to consider before selecting an acquisition structure, corporate attorneys generally recommend you emphasize the following:

Mergers between companies can get complicated. First, there are potential regulatory issues, at both the state and federal level. These regulatory issues can involve multiple agencies and be quite complex, requiring the use of lawyers specializing in such issues. This, of course, can drive expenses up considerably. Further, there are potential issues arising from differences between the companies merging, including differences in corporate culture. All of these issues require consideration, and many companies, especially companies engaging in their first merger, might not even be aware of what the potential issues are.

Regulatory Issues Often are the First and Most Significant Hurdle in a Merger

Under federal law, the Federal Trade Commission or the Department of Justice, depending upon the industry involved in the merger, must be notified of the merger if three tests are met. These tests are required under the Hart-Scott-Rodino Act, or HSR, the antitrust law that governs mergers. The most important test under HSR regulations is the size of the merger. Depending on if the merger breaks a value threshold, then the federal government may need to be notified. If your merger is large enough to require reporting under the antitrust laws, you must make an initial filing of certain documents known as a 4(c) filing, referring to the section of the HSR Act that requires the filing.

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Mergers in the tech world are quite common. In a merger, one or more companies combine to form a new company (i.e., legal entity). Mergers can be complex and have many moving parts. The transaction can often include legal documents, valuation, key deliverables, operational logistics, regulatory matters, and financing and payments. A Silicon Valley M&A attorney can assist with your merger M&A transaction and handle multiple facets of the transaction.

Structuring the M&A Transaction

A merger and/or acquisition is a term that can be used to represent several types of transactions. Some M&A transactions might include:

Fotolia_172702870_Subscription_Monthly_M-1-300x187Successful merger and acquisition (M&A) transactions often rely on how well the parties involved communicate and how efficiently they can complete negotiations and due diligence. There are many steps that have to occur from initial interest in an M&A to full signature, payment, and completion of the transaction. Both parties, the buyer(s) and the seller(s), need to make sure the transaction is mutually beneficial. The Letter of Intent is one important step in this process.

Purpose of an LOI

The first step in formalizing any M&A transaction is usually a Letter of Intent (LOI). This document can sometimes also be called a Memorandum of Understanding (MOU). The LOI is a written document that outlines the buyer’s initial intentions and may include pertinent information and conditions related to the transaction. The delivery of an LOI to another party presents the seller’s intentions and begins potential negotiations. If you are the party issuing an LOI, you will want to make sure your letter is professional, clearly communicates your intentions, and sets forth realistic expectations. An experienced M&A attorney can assist in the drafting of your LOI.

Due-Diligence-300x200There are many reasons why thorough due diligence is indispensable to a successful corporate acquisition. Perhaps most importantly, it is a critical step in ensuring that they buyer has a comprehensive picture of what is being acquired. Both legal and financial interests are placed at risk in any business transaction. If thorough due diligence is not performed, a corporation can incur legal liability to its shareholders for losses sustained in the negligent acquisition. It can also lose significant assets, or waste valuable time and money on litigating the failed transaction. An experienced mergers and acquisitions attorney can protect your business by ensuring that all aspects of your due diligence investigation are conducted accurately, thoroughly, and with a broad-reaching projection for all potential contingencies. While it is not a legal requirement for the due diligence process, hiring an experienced Mountain View mergers and acquisitions attorney it is the best way to ensure that your investigations are thoroughly completed and can also protect a corporation from shareholder claims that its due diligence was incomplete or inadequate.

Due Diligence: The Basics

In general, due diligence is the process by which a buyer or seller performs a comprehensive appraisal of a business asset before executing a sales transaction. On the buyer’s end, this thorough investigation will examine the assets and liabilities of the assets to be purchased, as well as forming a picture of their commercial potential. For the seller, a due diligence investigation will focus on the buyer itself. It is vital for the seller to know whether the buyer has the financial means to consummate the deal. If the transaction will give the buyer any rights to management or control of the seller’s business, it is also important for the seller to learn about those processes, and how the seller’s business operations might be affected by the buyer’s exercise of those rights.

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