Our Practice Areas
Business Acquisitions
Business transactions are never easy, even for the experienced business owner.
There are two methods to purchasing a business: an asset purchase or an equity purchase. Depending on what your objectives are, we can assist you as the buyer or seller.
Whether it be a business acquisition or merger, the process can be tedious and open the door to liability if not carefully completed. At Ser & Associates, we regularly assist our clients with the purchase and sale of businesses.
What's the difference between an equity purchase and an asset purchase?
With an equity purchase, the buyer acquires the seller’s ownership in the corporation (or limited liability company) that operates the business. With an asset purchase, the buyer acquires the assets used to operate the business directly from the corporation (or limited liability company).
Notwithstanding, for any business acquisition, the process follows a consistent process: letter of intent (LOI), purchase agreement, due diligence, and closing. Regardless of the stage the transaction is in, Ser & Associates is always prepared to take the lead or act in a supportive role.
Letter of Intent (LOI)
To begin the business acquisition process, an LOI is drafted to memorialize the initial negotiations, which efficiently and effectively keeps the transaction moving along.
The LOI contains significant core terms of the acquisition––such as the purchase price, financing terms, and restrictive covenants––that must be mutually agreed to.
The LOI, however, is typically non-binding, which means that either party retains the right to walk away from the transaction. While non-binding, the LOI is still quite useful because it requires the parties to come to terms on the important aspects of the transaction. The more that is laid out and agreed to in the LOI, the quicker the next stage of the transaction will commence. Hence, diligence is key from the very beginning.
Purchase Agreement
Once the core terms of the purchase are agreed to, then it is time to transition to the purchase agreement.
The purchase agreement is a binding contract that will be substantially more extensive than the LOI, since it contains all the terms of the purchase. In addition to the core terms covered in the LOI, a purchase agreement further includes provisions such as due diligence items and procedures, warrants and representations, indemnification, closing procedures, conditions required for closing, dispute resolution, and confidentiality.
Moreover, since the purchase agreement is binding on the parties once executed, a party would be in breach of contract should the party attempt to walk away from the transaction. In that case, the non-breaching party may be entitled to monetary damages (including attorneys’ fees and costs), as well as the right to force the other party to proceed with the transaction.
Due Diligence
Following the execution of the purchase agreement, the due diligence period begins.
Due diligence gives the buyer the opportunity to verify information about the business being acquired by reviewing its financial records, contracts, assets, physical locations, employment records, and any other information that would be pertinent to the buyer.
During the due diligence period, the buyer commonly has the right to walk away from the deal without any penalty and for any reason. During this time, it is also prudent to begin working on any third-party approvals that are necessary for the transaction––such as minority owners, landlords, mortgagors, secured creditors, or franchisors.
Closing
At closing, the transaction is finalized and the business (or assets) is transferred to the buyer.
During this stage, the buyer pays the purchase price, and the seller executes any documents necessary to effectuate the transfer.
In the case of an equity purchase, the seller will assign the shares or membership interests; but in the case of an asset purchase, the seller will execute assignments for intangible property, bills of sale for tangible property, and deeds for real property.
Also, key personnel of the seller may also be required to execute post-closing restrictive covenants (including a non-compete, non-disclosure, non-disparaging, or confidentiality agreement).
