With a more stable economy than we’ve seen in several years (despite day-to-day market swings, which are not always reflective of the overall economy), and with the recent business-friendly tax reforms, businesses are feeling more confident and showing growth and higher profits.
With that confidence comes an increase in mergers and acquisitions (M&A). When businesses are doing well, other businesses take notice, and in some cases will make an offer to purchase or merge with an existing company. This can be beneficial for both sides, depending on the situation they are each in, but both sides should also be careful to protect themselves throughout the process with a corporate attorney experienced with M&A.
Due diligence is the process that both the buyer and the seller should engage in, which basically puts everyone’s cards on the table. Financial records, assets, intellectual property and many other things should be made transparent so that both parties know exactly what they are getting in to with an M&A.
Due diligence is a difficult thing to achieve without the help of an attorney. First and foremost, they will know all of the items to look for during the discovery process. Secondly, they will know how to evaluate those items. Finally, they will be able to give you sound advice regarding any concerns or issues that come up during due diligence. It’s important to remember that both the seller and the buyer should be protected by an attorney throughout this process, as critical issues can arise for each that may affect the status of the M&A.
Here are just a few issues to consider when purchasing or selling a business:
Assets is a very general term for nearly anything a business owns that is of value. This can be intellectual property (patents, for instance) or material property like a dump truck. In any case, both the seller and buyer need to be clear about all of the assets that exist so that the company is valued properly and nothing is overlooked.
What kind of technology is required to run the company? Do they use special software? Are their licenses for these up to date? Is the software functional and maintained and by whom? What hardware is used in the operation? What is its lifespan? This issue is even more critical for today’s businesses, which often rely on a particular technology.
A buyer should request and carefully review the company’s past performance numbers, projects, assets, profit and stock before purchasing or merging with the company in question. Additionally, ensure that the company has properly paid their business taxes since its inception and that they are not undergoing any audits. These items can be very enlightening and have a big impact on whether or not the purchase remains a good decision.
Is the buyer purchasing the company through the process of buying a majority share? If so, the buyer will still be acquiring the assets, obligations and all other aspects of the business. The buyer will also need to know about other shareholders in the organization and how the stocks are divided and sold.
Even small disputes with customers, vendors or employees can have a big impact on the purchasing organization. Don’t take on a business with disputes you do not want to resolve or handle. Likewise, determine if the company has any pending legal, regulatory or anti-trust issues.
Business is looking up, and buying or selling a business can be a great financial and personal decision, but don’t do it alone. Find a qualified corporate attorney who is familiar with M&A so that the decision remains a good one for years to come.