There are many potential challenges to executing a merger in Georgia. Problems could arise while negotiating contracts or determining the sale price of a company.
Our skilled mergers and acquisitions lawyer have experience resolving these types of issues in business transactions. If you are in the process of a merger, you should consider seeking legal help right away.
One of the biggest challenges business owners face when executing mergers is objectively determining the price for their companies. When you own a business, you think of it as your baby. You are intimately involved in your company, and you have an emotional attachment to it.
It is often difficult to ignore those emotions when determining the price of your company. However, if you amplify the perceived value of the business, the buyer will likely assess the company and come up with a different number. If you wish to sell your business, it is best to work with a law firm to objectively set a price for the merger.
When a business owner decides to merge with another company, there is a due diligence period. During this period, the seller must draft a letter of intent (LOI), a non-binding contract signed by both parties. This contract states that the buyer will do their due diligence to research the company, and if all the seller’s assumptions are accurate, they will pay the agreed-upon price.
However, problems could arise for the seller if the buyer does their due diligence and determines the initial assumptions are incorrect. For example, if the seller claims they have a 7.8 percent profit margin, but the buyer finds that the profit margin is only 7.3 percent, that could reduce the purchase price immensely. The seller would receive much less money for their company.
Another challenge with mergers is hiring the right experts to analyze the business in question thoroughly. If the buyer fails to adequately assess the company before purchasing, they could end up paying more than what the company is worth.
The due diligence period is crucial in a merger. Many of the disputes our attorneys come across stem from the buyer failing to hire experts to assess the company they are buying.
As a buyer, you might try to sue the seller for intentional fraud if you believe they misled you when advertising the value of the company. However, it can be difficult to handle a lawsuit as you try to run your new business.
Buyers also tend to encounter problems in their mergers when they neglect to place restrictive covenants on key-level employees working at the company they are buying. Without these types of contracts in place, the higher-level workers can legally steal the company—all the customer relationships, trade secrets, vendor relationships, and intellectual property. An experienced lawyer can help you execute employment contracts to prevent an incident such as this.
Whether you are buying or selling a company, navigating a merger can be tricky. Fortunately, our legal team at Sparks Law can help you get through the challenges of executing a merger in Georgia. Contact us today to schedule a consultation and discuss your business transaction.