Are you considering acquiring a company through a stock purchase transaction in California? Acquiring a business through a stock purchase offers tremendous opportunity for profit and business growth as well as exposure to genuine risk.
Key Takeaways About Acquiring a Company Through a Stock Purchase:
- A well-strategized and executed stock purchase acquisition allows you to “step into the shoes of the owner” assuming all assets, debts, profits and liabilities of the business or corporation you acquire.
- According to the Harvard Business Review and the Wall Street Journal the vast majority of stock purchase transactions in the United States fail within two to three years. Why?
- What is the biggest risk associated with acquiring a company through a stock purchase in California? In a word: liability.
The Watkins Firm mergers and acquisitions attorneys have more than four decades of proven experience helping San Diego entrepreneurs and business owners with Stock Purchase Agreements and every important step of a merger and/or acquisition. We support our clients through every critical step of the process from negotiations through due diligence, contract creation and review, escrow, and transition following the completion of the sale.
The Risks and Benefits of a Stock Purchase Transaction
What are the risks and benefits of a stock purchase transaction? A well-strategized and executed stock purchase acquisition allows you to “step into the shoes of the owner” assuming all assets, debts, profits and liabilities of the business or corporation you acquire. This acquisition can provide the assets, people and products to expand your existing company into new and profitable vertical and geographic markets. It can make you more valuable to the customers you serve.
However, according to the Harvard Business Review and the Wall Street Journal the vast majority of stock purchase transactions in the United States fail within two to three years. Why?
Ask Dan Watkins, our founding partner and an experienced San Diego and Southern California mergers and acquisitions attorney what percentage of our firm’s acquisitions succeed. The answer is – the vast majority… “almost all of them.”
Why? Why to most of these transactions nationally fail and what advice and services can the Watkins Firm provide to protect your interests, help you to avoid issues and complete a successful and profitable business acquisition through a stock purchase transaction?
What are the Greatest Sources of Risk?
What is the biggest risk associated with acquiring a company through a stock purchase in California? In a word: liability.
Unlike an asset purchase, where the buyer acquires specific assets, the greatest risk in a stock purchase lies in contingent liabilities that may be unknown or not fully developed prior to the closing of the transaction. While this may not represent a failure to disclose on the part of the seller, it is a genuine risk assumed by the buyer. There may be an unknown defect in one of the target products or corporate processes. An existing customer issue may escalate to an expensive and resource consuming lawsuit down the road.
These transactions are all about extensive, successful due diligence. Some of most important steps required to complete the stock acquisition including (but not limited to):
- Identification of all assets, customers, intellectual property, existing contracts and potential new business contracts in process
- Disclosure and associated encumbrances for all loans, debts, liabilities and contingent liabilities
- Access to and inspection of corporate books and corporate records
- Negotiation, creation, review, modification and approval of the Stock Purchase Agreement
- Terms including purchase price, disbursement of funds, responsibilities of seller to ensure transfer of Goodwill
- Hold-back or reserve for unforeseen liabilities
Pro-Tip: “In an M & A (Mergers and Acquisitions) transaction, it’s harder to be a buyer. It’s easier to be a seller. A buyer has the harder task because the buyer gives money and the buyer has to verify what they are getting. And that’s when we come up with a term called “schedules,” depending on how expensive or larger a transaction is, you’re going to have more schedules.
If you are pursuing, let’s say, a real easy and less expensive transaction, schedules are what we use to organize and identify the assets of a company. For example, you have your real estate schedules, you’ll have a disclosure by the seller of what they own and all the contracts they’ve signed with respect to real estate. You’ll have equipment schedules and the seller will have to disclose specific issues, and you’ll have cash value and you’ll have accounts and goodwill and taxes and all the things that you want to do as a buyer in an organized fashion to review, to make sure you know what you’re getting, and to make sure you get representations from the seller that ‘this is what I’m giving you’ in case later on, it turns out they weren’t telling the truth.
We want to have all of the agreements that are applicable that will help the company survive and, and do better. And the way we do that is we have lawyers have been for 30 years or more. And we have a bank, a proprietary library of all of the transactional documents we’ve prepared over the years. And in that 30 or 40 years of transactional documents, our lawyers have probably come across the same type of agreement and the same type of deal you are proposing.
We’ll go back and we’ll find maybe four or five of these similar agreements. And we’ll also compare that to our paid litigation research bank. And we’ll make sure it’s current in the law and we’ll run it by you. And then we’ll also be able to tell you, as older lawyers, that this is what other clients have done and it worked for them. So in addition to just writing up the agreement, as you ask, we can also give practical advice of what people have done in the past, and strategies that did and didn’t work. What are the elements of the transactions that were ultimately successful and profitable over the years?
The first thing I would do is create a list of what you want. If you have a buyer or a seller in mind, get together with them and write out a letter of intent or a memoir of an of understanding. You need an experienced M & A attorney.
You need an experienced CPA to find out what the company is worth, and you can come to us too, and we can help you with all of that. Call us for a free consultation, or come by and talk to us about what you want to do. And we’ll add a bunch of things to that list and give you some good ideas of what to think about and tell you some war stories or some other purchase and acquisition stories that we’ve had in similar situations. And then perhaps you can come up with some good terms and come to an agreement with the buyer or seller. And that’s what our transaction lawyers do. They make deals, and they’ll help you close the deal.” – Dan Watkins, Founding Partner
Proven Legal Partners for Acquiring a Company Through a Stock Purchase in California
Are you searching for proven legal partners for acquiring a company through a stock purchase in California? You need the experienced, proven attorneys at the Watkins Firm. Ask about our proprietary, proven library of checklists and acquisition documents developed over our 40 years of experience. We tailor an existing, proven contract and supporting documents which have been battle tested and proven in many successful acquisition transactions.
We provide insight, analysis, review and supporting legal services at every step of this legally and financially challenging process. 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.
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.
