What are some of the major challenges of mergers and acquisitions in San Diego and Southern California?  The Harvard Business Review recently reported the number of mergers and acquisitions which fail is between 70% and 90%.  Why are so many mergers and joint ventures experiencing substantial challenges or failure?  How can the Watkins Firm help your organization or entity to ensure a successful merger or acquisition?

As companies grow, some seek to expand even further by buying another business. Mergers and acquisitions, however, are legally complex and require the extensive skill of the well-trained and experienced business attorneys at the Watkins Firm.

What are Some of the Leading Reasons for a Merger or Acquisition to Fail?

There are obviously too many challenges in any merger or acquisition scenario to conclusively list.  However, there are several which most industry watchers and researchers agree upon.  The first group of issues is associated with an absence of crucial information.  This is why extensive due diligence is required in any successful merger or acquisition.

The challenges of mergers and acquisitions in California are rooted in the details. The Watkins Firm has developed extensive checklists and processes to ensure our clients gain a thorough understanding of all important details, numbers and aspects of the transaction.  The process of confirming valuation and the likelihood of continued success helps to prevent overpayment for the acquisition.  A thorough analysis of existing management personnel on both sides of the transaction as well as key players within the target of the acquisition helps to ensure key personnel will remain in place to ensure a smooth transition.  This process should also give consideration to operational synergies which may be gained through the acquisition as well as the fit of the cultures of the companies and the likelihood that presently separate cultures can work together in a cohesive manner going forward.

One of the most difficult of the challenges of mergers and acquisitions in California is the integration team itself. When a new business is bought up, there is a transition period in which an integration team should work at making the two companies operate and run as one. Key personnel ensure the continuity of successful internal processes, production and sales.

It is important to verify the marketplace and future trends in the industry to ensure the timing of the acquisition is appropriate.  Has something within the acquisition target or the industry itself recently changed?  Is the customer base stable and growing, or have key customers been moving away from the company to be acquired.  Consider the impact of personal computers on the typewriter industry and mainframe computing in the early 1980s.

Pro-Tip: “The most common mergers and acquisitions transaction is the asset purchase.  What are some things you need to know about transferring the legal title to a business asset?  Well, first of all, the reason you want to do an asset purchase is because you’re buying the actual assets they’re being described, and 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. An asset purchase will often entail an escrow. We help create an escrow for the company and send out a notice that you’ve bought this company’s assets.

And if you’re a creditor, you have 60 days to come and make a claim. Otherwise, after that, as the buyer you will own not only the equipment you’ll own any associated Goodwill, you’ll own the name, the IP, whatever it is that is described and established in the asset purchase contract, free and clear.

When you buy the shares of a company, then you end up 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 business people prefer an asset purchase.

So when an asset is encumbered, it is the responsibility of the seller to disclose that. And how do you handle when there are UCCS and encumbrances against an asset?

That actually happens a lot and we have 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 the attorney’s trust account or an actual commercial escrow company, like Chicago title first American title. And then you put escrow instructions in and say, ‘okay, when the money comes in, the escrow officer is instructed to pay off this creditor or that creditor. Or, you also have a carve out, or, 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 need to be considered and included when you do an asset purchase.” – Dan Watkins, Founding Partner

Managing the Challenges of Mergers and Acquisitions in San Diego 

The experienced, proven business attorneys at the Watkins Firm have been helping our clients to manage the challenges of mergers and acquisitions in California for more than 40 years.  Mergers and acquisitions can be extremely beneficial for both the buying and selling companies, but only if managed thoroughly and correctly. There are numerous legal and business aspects that must be dealt with before a successful merger and acquisition can be completed.

If you would like to learn more about successfully navigating the challenges of mergers and acquisitions in San Diego and Southern California 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.