Articles Tagged with Mergers and Acquisitions

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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_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.

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:

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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.