How can our proven mergers and acquisitions attorneys protect your business interests? What is the best strategy to accomplish your goals and objectives for the transaction? The Watkins Firm has more than four decades of experience in San Diego and California mergers, asset purchase transactions, stock purchase acquisitions, and helping business owners to sell the company they’ve worked so hard to build.
Key Takeaways When Looking for Proven Mergers and Acquisitions Attorneys to Protect Your Business:
- What is the best acquisition strategy – an asset purchase or a stock purchase? What is the difference between the two and when should you employ each strategy?
- The asset purchase is one of the most common business transactions. However, there is still substantial risk for the buyer, and it is important to work with the Watkins Firm to ensure you receive full, clear title and prevent successor liability.
- Stock purchase transactions convey a company. These are complex legal and financial transactions fraught with risk and opportunity.
Stock Purchase or Asset Purchase?
What is the difference between a stock purchase and an asset purchase as a mergers and acquisitions strategy? Generally speaking, an asset purchase allows the buyer to acquire specific business or corporate assets from the seller. A stock purchase transaction allows the buyer to “step into the shoes of the seller” with the acquisition of an entire company or controlling interest in a business or corporation. Each form of transaction carries a blend of risks and benefits for buyers and sellers alike.
Asset Purchase Transactions
Our Watkins Firm experienced and proven mergers and acquisitions attorneys protect your business interests. Asset purchase transactions occur when your company is acquiring specific assets from another business. Assets which can be acquired in this form of purchase include but are not limited to:
- Vehicles
- Equipment
- Real Estate
- Inventory
- Machinery
- Fixtures
- Licenses
- Intellectual property and trade names
- Even Customers as well as accounts receivable and payable
An asset purchase provides some tax advantages for the buyer, however there are substantial risks associated with these transactions. Principle issues in these transactions include a detailed understanding of the actual asset(s) to be purchased including condition, unique identifies such as serial numbers, and clear title. The risks of an asset purchase include existing encumbrances, contingent liabilities and the risk of “successor liability” – litigation from creditors of the seller. As in any M & A transaction, due diligence and carefully crafted transactional documents and contracts are the key to a successful asset purchase.
Stock Purchase Acquisitions
How can a stock purchase agreement protect your business interests while allowing you to acquire the company or business you intend to buy? What are the perspectives of the “buyer” and the “seller” in these transactions?
The advantage of a stock purchase is it transfers ownership or controlling interest in a company from the seller to the buyer. You don’t have to go to the time and expense of creating separate UCC agreements or descriptions of individual assets or negotiate with creditors to release encumbrances. The seller may enjoy a lower tax rate on the proceeds of the sale and has an incentive to ensure a smooth transition to the buyer’s management team.
Our experienced proven mergers and acquisitions attorneys protect your business interests with sound counsel and thorough due diligence. There are substantive and potentially risk-laden issues relating to outstanding loans and liabilities, as well as future disputes and contingent liabilities that may be unforeseeable at this point. There are risks associated with employees, product liabilities, customer transition and all outstanding financial debts and obligations.
A well crafted stock purchase contract agreement should balance the desires of the seller to close the transaction and move on, with the risks assumed by the buyer and the ability to lay unforeseen costs and liabilities back upon the seller prior to final reconciliation.
The buyer should be concerned with these present and future risks and liabilities. There should also be a careful analysis of the transaction from a tax perspective to ensure the “basis” for the new acquisition will not be stepped up to an unmanageable level. There may be specific governmental or other contracts that the buyer wishes to preserve.
The stock purchase allows the buyer to “step into the shoes” of the seller preserving all existing relationships, contracts and hopefully the book of business itself. There are issues concerning the seller’s impact on Goodwill and there is usually a transition period where the seller remains somewhat active in the ongoing operations of the business. This is phased out over a specified period of time where the transaction is ultimately concluded and final accounting is completed.
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 just hope it makes a profit.
The advantage to the buyers in a stock purchase transaction is they are stepping into the shoes of the seller. Sellers have tax advantages in selling stock. That’s always good because 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.
What are some of the effective strategies? You might request a holdover, having people work across the transition. There’s always something. And as a deal maker, that’s what a transaction lawyer is. You 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 company I’m selling gets that $200,000 and we get the deal done. Again, getting what you’re paying for, knowing that you’re getting full disclosure, Goodwill. The risk – people taking off and forming another company and competing with you, and also not having the expertise that the seller has. So, full disclosure and expertise. Those are probably the key things we see in whether companies we acquire are successful.” – Dan Watkins, Founding Partner
Watkins Firm Experienced Mergers and Acquisitions Attorneys Protect Your Business Interests
Your Watkins Firm proven mergers and acquisitions attorneys protect your business interests while providing sound advice and counsel throughout your M & A project.
How can our thorough proprietary due diligence checklists and process and extensive experience in stock purchase and asset purchase transactions quantify and reduce risks while facilitating the growth you seek? If you are considering an asset purchase, stock purchase, merger or acquisition it is important to make sure you understand every aspect and implication of the transaction. 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.
