If your business is fortunate to thrive and become a merger or acquisition target, we can represent you as the seller; or if you are on the other side and looking to acquire a business, we can assist with the due diligence in purchasing a business. In either case, your business will need thoughtful and comprehensive representation in all aspects of a merger and acquisition. We will help our clients along every step of the transaction: we will help in the structure, documentation, negotiation, and closure of the transaction as well as conducting due diligence as the deal progresses.
If your business becomes a merger or acquisition target, we will help you work through any technical details mentioned in a letter of intent, and we will help you through the process as you deal with accountants, tax advisors, and other professionals. And, if you seek a business merger or acquisition, we will help you draft a letter of intent and decide on the best choice among a merger, an asset purchase, or an equity or stock purchase.
And if you do choose to make an asset purchase, we will assist you in trying to exclude assets that may not be germane to the business or may carry liability, and to exclude liabilities or other contractual relationships that do not pertain to the acquisition; we will work with you to figure out all of the details of the transaction, including isolating the specific assets and liabilities that pertain to the asset, transferring employees, transferring permits and licenses, and drafting non-compete agreements.
Indeed, regardless of your position in a merger or acquisition, we will help you along at every step of the way. We have more resource materials on purchasing or selling a small business and on mergers and acquisitions here.
FAQs – Mergers and Acquisitions Law
When should I hire a M&A lawyer for representation in the purchase or sale of a business?
The short answer is as soon as possible. You should retain the services of a M&A attorney as soon as you are seriously considering acquiring or selling an existing business. This means you should retain the services of an acquisition lawyer or M&A law firm before ever signing a letter of intent. An M&A lawyer can provide valuable assistance in assisting in structuring the purchase and sale of a small business before you sign a letter of intent.
What is the process for a small business owner selling their business?
There may be both personal and business considerations to persuade a small business owner to sell their business. Once the small business owner makes that decision, they need to get an idea of the value of the business. They may already have a valuation in connection with non-qualified deferred compensation plans, which require what is known as a 409A valuation (Section 409A of the Internal Revenue Code). If not, there are many metrics to assist in determining the value of the business, including earnings before interest, taxes, depreciation, and amortization (EBITDA), which may be the most common metric.
Very small businesses with revenues under a million dollars in revenue may use seller’s discretionary earnings (SDE) to determine the value of the small business. A business owner may also consider a valuation expert to assist in determining the value of the business. Your M&A lawyer or the M&A law firm if hired early will guide you through the process while maintaining compliances.
As an M& A lawyer, what documents do you recommend that a small business owner should compile in preparation for the sale of a business?
During this process, a small business owner will need to start compiling the numerous documents that potential buyers will want to review during the due diligence process. These documents will include the corporate documents, major contracts, financial instruments, the lease or ownership document, licenses and permits, employment and independent contractor agreements, documents reflecting the intellectual property of the company, state and federal tax returns, social media accounts, financial statements and others.
When we are engaged as an acquisition lawyer, we facilitate a checklist of documents to prepare in advance for the process and to comply with the merger and acquisition law.
What role does due diligence play in the process of purchasing a business in merger and acquisition?
Due diligence plays a crucial role in the business purchasing process as it involves a comprehensive investigation and analysis of the target business. Due diligence starts before the letter of intent and is conducted through execution of the purchase agreement. There are numerous aspects of the due diligence process in which your lawyer will play a role. Due diligence assists with identifying potential risks and liabilities, securing financing, as some lenders or investors require thorough due diligence reports, and compliance and legal protection. When our merger and acquisition law firm is hired to manage the process, we ensure that due diligence is thorough to avoid any challenge at a later stage.
What is a letter of intent and how does it differ from the purchase and sale agreement?
Once a prospective buyer is interested in purchasing the business, the parties will generally sign a letter of intent outlining the major terms of the proposed transaction. A letter of intent is usually only a few pages long. Although most of the provisions in a LOI are not binding, a letter of intent locks in the structure of the deal and major deal points. A letter of intent indicates that the parties are on the same page, and for that reason, as an M&A lawyer, we recommend spending time to negotiate and agree in the letter of intent on not only the price, but also other major issues.
Many transactions will never close and it is in the interest of both the purchaser and the seller to recognize insuperable issues as early on in the process as possible to save considerable time, energy and, yes, attorneys’ fees.
After the execution of the LOI, the buyer then will generally further due diligence either himself or using an acquisition attorney before the parties negotiate the final purchase and sale agreement. The parties sign the purchase and sale agreement before or sometimes simultaneously with the closing of the transaction after vetting by M&A lawyers of both the parties.
In merger and acquisition law, what is the difference between an asset purchase and a stock purchase?
An asset purchase involves the sale of the assets used in connection with the operations of the business. The purchaser is a company or creates a new company, which receives the assets from the selling business. The assets may include the equipment, inventory, vehicles, and sometimes real estate. In a service business, the seller assigns the contracts from the business to the purchaser. In an asset purchase, the seller needs to convey the assets to the buyer. The seller conveys the computers, the equipment, the website, the trademarks and other intellectual property and all other property used in connection with the business.
In a stock purchase, the purchaser is buying the shares of stock of the company (for a corporation) or membership interests (for a limited liability company). The seller, which is the owner of the stock, will convey the ownership interests in the company to the buyer.
In general terms, the buyer in the purchase of a business wants an asset purchase, because the buyers wants to buy the assets of the target business, not its liabilities. Moreover, the buyer can obtain a stepped-up basis in the assets, which is favorable to the buyer from a tax standpoint.
According to you as an expert M&A lawyer, is it possible to sell goodwill separate from the purchase and sale agreement?
Yes. It is important to distinguish between personal goodwill and goodwill of the business. Goodwill of a business is considered to be the amount paid for a business over the fair market value of the business’ assets. A seller may sell the seller’s personal goodwill, separate and apart from the goodwill of the business. You would most often encounter a goodwill sales agreement in connection with the sale of a C corp as it allows the seller to avoid double taxation.
How does a seller maintain the confidentiality of information during the sale of a business?
For the seller of a business, maintaining confidentiality throughout the process of selling a business is critical for the seller. They should take appropriate measures to protect their information while also marketing and identifying prospective buyers. It is important to have a confidentiality agreement done by the M&A lawyer, but the seller should keep in mind that it may be difficult to enforce a non-disclosure agreement. Even with a confidentiality agreement in place, the seller does not want to release confidential and proprietary information at an early stage–and especially if the prospective buyer is a competitor. You should consult with an M&A attorney about how to stage the release of information. The seller may not want to share highly proprietary information with a prospective buyer until the parties have signed a letter of intent or even wait until they have entered into a purchase and sell agreement.
Besides an M&A lawyer, what other professionals may be able to provide support during the merger and acquisition process?
The merger or acquisition process often involves various professionals with specialized expertise. Tax advisers or accountants play a crucial role in mergers and acquisitions transactions by providing financial due diligence, analyzing financial statements, and assessing the financial health of the target company and assisting in structuring the transaction to minimize the tax burden on the parties. Depending on the nature of the transaction and the industry involved, compliance professionals may be consulted to ensure compliance with applicable laws, regulations, and industry standards. Tax advisors help identify and analyze the tax implications of the merger or acquisition, they can provide guidance on tax structuring and tax consequences. Your mergers and acquisitions lawyer can act as a central point of coordination, facilitating effective communication and collaboration among these professionals and ensure that all aspects of the transaction are aligned and properly addressed in the legal documentation. By working collaboratively, they can achieve a seamless and successful transaction while protecting your legal and financial interests.
Can my M&A lawyer assist in transition planning?
Yes. Even before a small business owner locates a buyer, they should develop a transition plan with a merger and acquisition attorney to consider the needs of employees, customers, landlords, and other stakeholders during the transition period. Each small business sale is unique, and these considerations may vary depending on the specific circumstances. Seeking guidance from experienced M&A legal expert can provide small business owners with the necessary expertise and support to navigate the sale process effectively and achieve a successful outcome.
As an M&A lawyer, can you assist a foreign buyer in purchasing a U.S. business? Are there special issues that a foreign buyer should be concerned with when purchasing a U.S. business?
There are specific legal considerations that need to be considered when a foreign company is planning to acquire a U.S. business. Considerations prior to the acquisition process include, tax implications, data privacy and security, cultural and language considerations, and regulatory compliance, which means that foreign businesses need to comply with various United States laws. In certain circumstances there may be a voluntary or mandatory review by
The Committee on Foreign Investment in the United States (CFIUS). You will need an acquisition attorney or an M&A law firm experienced in cross-border transactions and understanding of the legal complexities involved in acquiring a business based in the United States as a foreign. Your lawyer should be able to provide tailored advice, guide foreign businesses through the process, and ensure compliance with the laws and regulations of the United States, ultimately facilitating a successful acquisition.