California mergers and acquisitions require a skilled attorney with deep experience in these financially and legally complex transactions.  The Watkins Firm has more than four decades of experience helping business owners to sell their company, and assisting corporate clients and small business with stock purchase and asset purchase agreements.  The primary issues of any successful merger or acquisition relate to appropriate valuation, due diligence, effective contracts and the limitation of contingent liability.

Purchase and Sale Agreements

The agreement to purchase part or all of a company must be carefully crafted.  Each position, the buyer and the seller, have competing interests that must be addressed.  The seller is looking for a transaction that provides the greatest value for their interest in the transaction, while providing maximum tax advantage and limitation of liability following the completion of the deal.  Buyers want to make sure the seller’s claims, warranties and representations are true, comprehensive and appropriately valued.  It is important for a buyer to conduct “due diligence” to ensure that the financial records of a company support the representations of the seller.

Many buyers want the seller to take a limited role going forward to ensure continuity and to preserve customer “good will.”  The contract documents should provide the ability for the parties to offset unexpected (and undisclosed) discrepancies and to protect them for a period of time from contingent liability.  Should you deploy an asset purchase or a stock purchase?  How do you know that you are receiving all of the assets, inventory and benefit of the bargain anticipated in the deal?

Pro-Tip: “Transferring title to an asset. Well, first of all, the reason you want to do an asset purchase is because when you are buying the actual assets as they’re being described, you want to ensure they’re being sold to you in a manner where you don’t have to worry about all the other problems or secrets this corporation and its shareholders may have, or liens that may be in place against the asset(s).

An asset purchase, will often entail an escrow. You create an escrow for the company and you send out a notice that ‘I bought this company’s assets. And if you’re a creditor, you have 60 days to come and make a claim. Otherwise, after that I’ll own not only the, the equipment I’ll own, the Goodwill, I’ll own the name, the IP, everything free and clear.’ If there are any creditors claims, when you buy the shares, then you end in a situation where you’re not buying the assets, you’re buying whatever the shares have power over, and that can be complicated and hard to understand or even know what you’re getting. So from that point of view, and also for the tax advantages of depreciating assets and other things, most people prefer an asset purchase.

So when an asset is encumbered, it the responsibility of the seller to disclose that. Do you know how to handle things when there are UCCs, liens or encumbrances against an asset? That happens a lot and you may need to provide for what we call carve outs or clauses in the agreement where the money comes in, goes into an escrow account, whether it’s our trust account or an actual commercial escrow company, like Chicago Title or First American Title. And then you put escrow instructions in and say, ‘okay, when the money comes in, the escrow, the officer is instructed to pay off this creditor or that creditor,’ or you also have a carve out, and you’ll enter into a new agreement with the vendors or the creditors to keep doing business with them. So all those types of things are included when you do an asset purchase.” – Dan Watkins, Founding Partner

California Mergers and Acquisitions Require A Proven and Skilled Attorney

California mergers and acquisitions require a skilled attorney to guide you through each step of the process while protecting your interests.  The experienced attorneys at the Watkins Firm have manage all forms and sizes of San Diego and Southern California mergers and acquisitions transactions for over 35 years.  From large corporate deals to small business acquisitions, our legal team can protect your interests and ensure that your transaction is structured to move from initial signing to a successful conclusion. 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.