Mergers and acquisitions carry risks and rewards as a means of growth and expansion for any San Diego or Southern California business. These transactions are fraught with contingent liability for the buyer but offer substantial business and financial rewards as well.
The Two Primary Tools of M & A: Stock Purchase and Asset Purchase
The two primary tools in Mergers and Acquisitions or M & A transactions are a stock purchase and an asset purchase.
A stock purchase allows you to take ownership of a company, competitor, or even a portion of a major corporation that is less profitable or doesn’t fit into the parent company’s long term strategy. It may fit your corporate strategy like a glove. The potential gains in market share, employees and customers, geographical expansion, product offerings, inventory, manufacturing or distribution capacity or other assets can bring explosive growth to your business.
An asset purchase allows the buyer to carve out specific assets to be acquired without stepping into the shoes of a business owner as one would in a stock purchase transaction. Asset purchase transactions allow a buyer to quickly enhance their business and service capabilities while obtaining potential tax advantages.
So What Are the Risks?
Mergers and acquisitions carry risks and rewards so what are the risks associated with these transactions? The keys to a successful asset purchase transaction are clear title and due diligence to ensure there are no liens, contingent liabilities or the potential for successor liabilities associated with the assets to be acquired. The primary risk in an asset purchase is a lack of clear title and the opportunity for a creditor to assert successor liability.
The primary risks of a stock purchase strategy lie in valuation, debt, lack of substantive due diligence and contingent and often hidden liabilities. A successful stock purchase means you step into the shoes of present ownership and control the company. While this includes all assets, income and benefits it also includes all debts, legal liabilities and lawsuits. Your legal counsel must conduct extensive due diligence to ensure that a just valuation has been established for the transaction, there are no lawsuits on the horizon, and that the debts you acquire do not exceed the value of the assets you can deploy. Shrinking demand, new competition, a challenge with a critical supplier, customer or employee as well as the inability to obtain a critical component or element for manufacture may be the hidden issues which resulted in the sale of the business in the first place.
Mergers and Acquisitions Carry Risks and Rewards in San Diego and Southern California
The experienced mergers and acquisitions attorneys at the Watkins Firm have more than 40 years of experience with these legally and financially complex transactions. We will help to protect you from potential risks while locking in the advantages of the stock purchase for your company. We will help you to understand the value of the prior ownership’s “good-will” and how to contractually ensure the smoothest transition possible. We will help to ensure that contingent liabilities are offset by “hold backs” and other escrowed proceeds from the sale.
All mergers and acquisitions carry risks and rewards but a well-conceived and executed transaction substantially increases the odds of success. Learn more about how the Watkins Firm can support your plans and protect your interests. 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.
