Are you searching for an experienced M & A and stock purchase attorney in San Diego or throughout California?  In an M & A transaction (Mergers and Acquistions), a stock purchase is a much more substantial legal and financial undertaking than an asset purchase.  There are inherent risks for both the buyer(s) and the seller(s).  What are some of the primary risks and advantages of a stock purchase?

What is a Stock Purchase?

Generally speaking, during a stock purchase the buyer will acquire all outstanding stock of corporate entity from it’s stockholders.  This has the effect of the buyer “stepping into the shoes” of the seller, transferring ownership of the entity and all of it’s assets, debts, rights, contracts, intellectual property and contingent (undisclosed or unknown) liabilities.

The Advantages of a Stock Purchase in San Diego

What are the advantages of a stock purchase in California? How can an experienced M & A and stock purchase attorney from the Watkins Firm help to make sure your transaction is as successful as possible?  A stock purchase, from the seller’s point of view, provides the opportunity for substantial financial gain which is taxed at a much lower rate than, for example, the proceeds from an asset sale.  If the company being sold is a C Corporation, the seller is also able to avoid additional corporate taxes which might otherwise be owed.

From the buyer’s perspective a stock purchase allows one to take over an operational and known entity as well as it’s existing employees, customer base, facilities, employees, trade secrets, intellectual property and contracts.  From the outside, there is no visible change at the time of purchase, with the intent of preserving all existing customers, revenues and operations as well as important relationships with employees, customers and vendors alike.

The Disadvantages of a Stock Purchase in San Diego

If it were really as easy as “I’ll pay you this amount of money and step right on in” you wouldn’t need an experienced M & A and stock purchase attorney from the Watkins Firm.  However, there are substantial risks to both the buyer and the seller associated with a stock purchase.  The devil, as they say, is in the details.

From a  buyer’s perspective, there may be less tax benefit from a stock purchase than they might otherwise be able to claim in an asset purchase.  In addition, the buyer is not only purchasing assets, but all of the debts and obligations, known and unknown, contingent liabilities as well as any negative associations with the target acquisition.  Are the representations made by the seller accurate?  Are the books clean and up-to-date?  Are there pending disputes, litigation or known potential risks based upon the company’s actions, products, services and/or failures?

In many cases, the best protection for the buyer is to make requirements of the seller he/she/they may not want to commit to.  For example, it may be prudent to set aside funds to offset unforeseen or undisclosed losses, short falls, overstatements or revenue issues.  The buyer may require the seller and/or their senior team to remain in place for a transitional period to ensure the “benefit of the bargain” is genuinely transferred from seller to buyer.

Hidden Risks in a Stock Purchase

One of the most important benefits an experienced M & A and stock purchase attorney from the Watkins Firm can provide is the benefit of more than four decades of successful experience in these transactions.  We have a tremendous depth of experience representing both buyers and sellers in these transactions.  We know what has contributed to successful stock purchase transactions in the past, as well as the hidden risks in a stock purchase that can come back to harm the buyer as well as the seller.

What protections should you ensure are incorporated into the transaction to protect your position?  How can the buyer best insure the company continues to perform and grow once the acquisition has been consummated?  How can a seller best complete their responsibilities under the transaction and move forward with their next opportunities?

Pro-Tip: “In an M & A 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

A Proven, Experienced M & A and Stock Purchase Attorney in San Diego and California

A stock purchase transaction can be a tremendous opportunity for both parties.  There is a substantial amount of information which must be transmitted between a potential buyer and seller.  Details must be verified.  Due diligence must be thorough in order to identify potential discrepancies as well as hidden risks embedded within the transaction.

A comprehensive and thorough stock purchase agreement will guide the parties through the transaction and beyond.  Your Watkins Firm M & A attorney clearly understands the essence of the transaction, while contributing to the atmosphere of reaching agreement.  Our legal team will provide insight, sound counsel, legal skill and the benefit of knowing all the potential paths to resolve a challenge as well as the steps to take to avoid unforeseen pitfalls.  This is why you need the experience, legal skill, business savvy and protection of a Watkins Firm stock purchase attorney in San Diego.

Are you searching for an experienced M & A and stock purchase attorney in San Diego or anywhere in California? We invite you to review our podcast Episode 13 – Mergers and Acquistions as well as the strong recommendations of our clients and contact the Watkins Firm or call 858-535-1511 for a complimentary consultation today.