Mergers and acquisitions are different types of business transactions, but they bear a lot of similarities. Whether you are considering selling your business or purchasing a new one, you should understand the difference between mergers and acquisitions in Georgia. One type of transaction may be better for your business than the other, so don’t hesitate to speak with one of our mergers and acquisitions lawyers.
In a typical merger, one company fully consumes a smaller company. The smaller company sells all of its equity and shares to the larger one. In return, the consumed company receives some portion of equity in the newly merged entity.
Generally, the merged company will continue employment and vendor relationships. Most of the employees and staff from the consumed company will stay, but not all. Additionally, the owners of the smaller company will become owners of the larger conglomerate.
The main difference between a merger and an acquisition is that the sellers typically do not take stock in the buyer’s company in an acquisition. The purchasing company pays cash for the other business.
You should also keep in mind that the owners of the acquired company don’t participate in the management of either company after the sale. However, they might be involved for a certain amount of time if there is an earnout agreement.
There are many different sale structures you can use when executing a merger or acquisition. The main ones are stock purchase agreements and asset purchase agreements.
A stock purchase is when a business owner buys stock in another company, and that company keeps running. The benefit of this structure is that the existing contracts between that business and its vendors, customers, and employees are maintained. However, a downside is that all liabilities associated with those contracts are retained as well.
For example, if the acquired company rented an X-ray machine but lost possession of it, they would owe the retailer the price of the device. Unfortunately, if you bought the stock of that company, you’re purchasing that liability with it.
This can become a problem if the seller does not disclose all their liabilities to the buyer. If the acquired company does not tell the buyer that they were four months behind on rent, the purchaser will owe the landlord that money.
As the name suggests, in an asset purchase, the buyer only purchases assets. These can include:
If you’re the buyer, you might also want to purchase non-compete agreements for the key-level management team. The benefit of making an asset purchase is that you are not at risk of liabilities that will continue after the sale has been finalized. However, you won’t get to take advantage of the contracts that are in place. After an asset purchase, the buyer must either write new agreements or draft a special assignment and assumption clause that transfers the rights to the original contracts from the seller’s company to the buyer’s.
While there are some differences between mergers and acquisitions in Georgia, they are actually quite similar. They are two different tools that can be used to accomplish the same thing. If you’re thinking of buying or selling a company, schedule a consultation with an attorney at Sparks Law today.