If you are selling or buying a San Diego business you should work with the attorneys at the Watkins Firm who have almost four decades of experience in all aspects of mergers and acquisitions, as well as the sale of a business. These transactions are legally quite complex, and there are several issues to consider, discuss and negotiate.
Key Takeaways when Selling or Buying a San Diego Business:
- The 3 most common contracts in Mergers & Acquisitions (M & A) transactions are a stock purchase agreement, asset purchase agreement, or a Membership Interest Purchase Agreement (MIPA);
- Warranties and representations are important elements in any transaction involving the sale of an entity in California.
- Due diligence must be comprehensive on the part of any buyer, but the seller must also verify the ability of the buyer to fulfill the terms of the agreement as well.
Important Elements When Selling or Buying a San Diego Business
The most common methods to sell a business are a stock purchase or asset purchase. Another common transaction involves the purchase of a membership interest in an LLC. LLC’s are owned by “members.” Therefore, if one intended to purchase an LLC, one would acquire the interests of every member or the interest of the majority owner. The Membership Interest Purchase Agreement or MIPA is the contract of conveyance in these circumstances. When one is acquiring a business, there are extensive due diligence checklists that must be completed in order to protect the interests of the buyer and ensure all aspects of the seller’s “representations and warranties” are verified and accurate.
The seller will usually provide “representations and warranties.” Representations and warranties are an important part of any M & A transaction. The buyer must thoroughly review these disclosures, as well as the books, existing customer and employee relationships, the state of the market and the acquisition’s position within that market, recent changes in technology or other developments that may alter past performance, and many other legal and financial aspects of the transaction.
Why Do You Need an Experienced San Diego Mergers and Acquisitions Attorney?
Why do you need an experienced San Diego Mergers and Acquisitions attorney when selling or buying a San Diego business? There are many crucial pieces of information that must be disclosed, verified, and ultimately captured in the contract(s) that will control the acquisition at hand. Valuation is a critical element when buying or selling a business. There are several methods for establishing the value of a company, and sellers are required to provide transparent and honest representations regarding the past performance of the company.
Customers are an excellent source of information. You can interview a customer or two and learn a lot about the company you are acquiring. This must be done delicately, however the information provided can provide keen insight into corporate performance as well as present and future viability.
Due diligence should include a thorough examination of the company’s books, as well as tax returns and bank records. Our clients want a legal team who aggressively protect their interests, while respecting and fostering a positive and productive working atmosphere when a deal is being negotiated.
Selling or Buying a San Diego business also requires transition planning. How will the current owner(s) work to ensure that a smooth transition takes place, preserving existing goodwill. How will contingent liabilities be addressed, and what portion of the sale proceeds will be held in escrow to offset unexpected liabilities or differentials between projected revenues and actual sales? When does the liability for the seller cease?
Ask about the Watkins Firm’s proprietary contract database, documents proven over literally almost four decades of experience in thousands and thousands of M & A transactions. The Watkins Firm doesn’t have to create these from scratch. We take a battle-tested, proven contract from a similar transaction and modify it to meet the precise elements of your transaction. You are protected by a proven, tested contract that is tailored to your exact situation at a fraction of the cost of creating those documents from scratch. You can rest in the comfort of knowing every detail of the transaction has been tested in dozens, if not hundreds of transactions just like yours.
Pro-Tip: “Well, when you have a corporation for a long time, it becomes another person, a citizen, and you get credit for that corporation that corporation can sign leases, that corporation can sign vendor contracts, it can get licenses, it can do all kinds of things that have built up over the years. Whereas if you have a brand new company, you’re guaranteeing everything. So if you want to buy a company that’s already running, you don’t have to renegotiate everything and you just come over with a good shareholder agreement and a stock purchase. You can step into the shoes of a very successful company and work to ensure it makes a profit.
Sellers have tax advantages in selling stock. That’s, that’s always good because a, a stock sale on something you’ve held for a long time, it’s going to be taxed at a better rate. Also it’s a cleaner transaction. You just sell the stock, there’s still going to be due diligence and you still have to make representations and warranties about the company. So it’s still going to be your liability if you’re not honest and truthful, but you definitely would prefer to do a stock sale.
As a deal maker, and that’s what a transaction lawyer is, we want to come up with creative ways to get the deal done while certain contingencies wait, we have had money and trust accounts on deals for two years while a contingency is fulfilled by the seller. So you’ll pay 2 million for a project and there’s $200,000 coming to the company, but it’s not going to come for a while. So the seller will say, ‘well, let’s keep the $200,000 for me in escrow until the benchmarks are met,’ and that $200,000 offsets much of the buyer’s risk, and we get the deal done. Once the money comes in, then the buyer says ‘release the money to the seller’ and everybody’s happy. It’s a win – win.
What’s the risk from a stock purchase Buyer’s point of view? If you’re a buyer you want to make sure you are getting what you’re paying for, knowing what you’re getting, have full and accurate disclosure(s), Goodwill, protections to ensure the seller can’t just go off and form another company and compete with you, and ensuring the expertise of the seller is transferred in some manner through the transaction. Full disclosure, and the buyer’s expertise to fix any issues and hit targets going forward. Those are probably the key things we see in whether companies we help to acquire are successful.” – Dan Watkins, Founding Partner
Four Decades of Proven Success in Mergers and Acquisitions
The Watkins Firm has four decades of proven success in mergers and acquisitions here in San Diego and Southern California. Our Firm and its attorneys provides sound counsel to our clients (buyers or sellers) to support their efforts and protect their interests in these legally and financially complex transactions.
If you are selling or buying a business in San Diego we invite you to review our podcast Episode 13 – Mergers and Acquisitions as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today. Ask about our extensive, proven checklists and processes which have guided thousands of these transactions in the past. We will work with you to develop a strong strategy that will guide the transaction smoothly through the process of due diligence to a successful close.
Meet Daniel Watkins:
Daniel W. Watkins is a true people person who sincerely listens. He cares deeply about what others are going through. Dan enjoys digging into the facts and finding creative solutions to problems. He contributes his insights candidly and constructively.
Dan’s interest in people make him deeply invested in every relationship and his exuberant personality makes him a true litigator. Dan fights for his clients with a fierce and calculated commitment.
Dan has practiced in the areas of business, medical practices and healthcare business, high tech/science, real estate and employment defense law since 1987. He is a trusted litigation strategist and true trial attorney with over 50 jury and bench trials to his credit. Dan has successfully represented both large companies and individuals and achieved substantial victories in well-publicized trials throughout California and the U.S.
He is experienced in business and corporate formation and administration, as well as all forms of alternative dispute resolution, including binding arbitration and mediation.
THE ROAD TO BECOMING A BUSINESS LAWYER AND LITIGATOR
Dan has almost 40 years of experience working with, for and against some of the largest insurance companies in the country. He has successfully tried and litigated cases in the areas of Healthcare Compliance, Commercial Litigation, Unfair Business Practices, Fraud, Breach of Contract, Battery, Premises Liability, Product Defect, Medical Malpractice, Discrimination, Sexual Harassment, Construction Defect, as well as Unfair Competition, Defamation, and Trade Secrets.
In December 2003, Dan commenced litigation against Health South Surgery Centers-West, Inc and its’ subsidiaries, exposing the company’s extensive mismanagement and misconduct of its’ surgery centers. Dan has also been asked by some of California’s largest municipalities and corporations to conduct legally required investigations into matters involving alleged employment discrimination and harassment.
