One strategy for growing your company is to consider a merger or acquisition (M&A). Legally, these business combinations allow a business to expand its customer base and operations, act as an exit strategy for management, become a public company, or acquire ancillary products or services. Mergers are the blending of two companies into one. Acquisitions involve one company buying another’s assets or its stock, which includes assuming the debt.
Business combinations can be arranged between small companies or large public companies. If you are interested in growth or diversification, our California mergers and acquisitions lawyers are here to advise you. The skilled attorneys at Sparks Law can help you identify a suitable target, negotiate on your behalf, conduct due diligence, and draft the necessary agreements to get the deal done.
When two businesses in the same sector decide to merge, it is called a horizontal merger. When a larger company merges with a smaller one, it is called a vertical merger. One common example of this is when manufacturers merge with companies that provide components for their product. Conglomerates bring diverse parties from unrelated businesses together. Those who have questions about prospective mergers should contact an experienced attorney in California to discuss their situation.
Stock purchases involve shareholders of the target corporation agreeing to sell their stock to the acquirer. These stockholders are paid an agreed-upon price, which could include an exchange of shares for all or a portion of shares in the new company. The acquirer could end up owning all the stock of the acquired company or keep the shareholders from the old company onboard. With a stock purchase, the buyer assumes the assets and liabilities of the acquired company.
Asset purchases involve an acquirer paying the company for the assets but not assuming the liabilities. On paper, the old company still exists, and the company has technically not changed hands. If more than 50 percent of the assets are sold, shareholders generally must agree to an asset purchase. To discuss a business combination in California, consult our experienced attorneys who can structure a merger or acquisition for the situation.
Hostile takeovers are attempts by some acquirers to buy a controlling interest in a company when the board of directors of the target company does not wish for the company to be acquired. One tactic an acquirer might use is to continue to negotiate with shareholders to sell their interests.
One company defense strategy is called a poison pill, in which loyal shareholders can purchase more company stock at a discounted price after a triggering event. Also called a shareholders’ rights plan, this dilutes the stock price and forces the hostile takeover candidate to pay more for the acquisition. This maneuver is complex and is best tasked to a competent M&A attorney in the area.
In a merger or acquisition, the parties need to know how much they should pay to get good value. Management, attorneys, and accountants can study similar acquisitions or look at valuations for similar publicly traded companies. They can also value the target company by establishing future cash flow using the discounted cash flow method. A savvy M&A lawyer could work with a company’s principals to value the target company.
In an asset purchase, the acquiring company can manage the acquired company as usual or absorb the assets and close the business. After a stock purchase, the acquirer could close the acquired company or become a parent to its subsidiary.
The companies could also become a new company with a new name. California business owners interested in mergers and acquisitions should talk to a knowledgeable attorney at Sparks Law.
There are many reasons to participate in a business combination. You can define your retirement exit strategy, or you can position your company for growth and diversification.
A California mergers and acquisitions lawyer could support you through this complicated process. We can negotiate on your behalf, draft definitive documents, conduct due diligence, and ensure that you comply with state and federal laws. Call today for your initial consultation.