Helping Companies Achieve Their Goals
Successful business growth is about being able to make changes when necessary, and sometimes, those changes can involve merging with or buying another company. This is an exciting time for your business, but it’s also one that can be complicated and come with specific challenges. Having a solid understanding of how this process works and where an attorney is needed can help you make the right decisions for your business.
If you’re considering a merger or acquisition for your company, it’s imperative that you speak to an attorney as early in the process as possible. These kinds of deals take a lot of planning and preparation, and involving an attorney from the beginning can make this process easier and ensure that you have legal representation protecting your interests. Contact the attorneys at Badmus & Associates to learn more.
What Is a Merger?
A merger is when two companies come to a contractual agreement to operate as one. Mergers create an entirely new legal entity, which is an important differentiator from an acquisition. Some of the most common reasons to go through with a merger include being able to increase market share and reduce the cost of producing similar products. There are several different types of mergers, and the right one depends on the overall purpose of the merger and the two companies involved. An attorney can help you choose the appropriate merger type and create a plan for the most efficient way to bring the two companies together.
What Is an Acquisition?
An acquisition is when one business buys another. An acquisition can include buying an entire company or purchasing only a portion of the company’s business. In contrast to mergers, an acquisition doesn’t produce a new legal entity. Instead, the acquired business is consumed into the buying business. It’s common for large portions of the acquired company’s staff to be laid off in the process, but this doesn’t always happen.
What Is a Letter of Intent?
A letter of intent is an important step in the merger and acquisition process. It is the formal notification that the buyer is interested in the deal and is expressing that interest in written form. The letter of intent includes preliminary deal terms, such as which parts of the business will be assumed and the purchase price. It’s important to note that this is just a starting point, and it’s common for there to be a great deal of back-and-forth negotiating terms and conditions before an agreement is made. Once the terms have been worked out, the deal proceeds to the next phase: due diligence.
What Due Diligence Is Required for Mergers and Acquisitions?
Due diligence is one of the most important parts of a merger or acquisition. In an acquisition, the due diligence phase allows the buyer to get a better understanding of the financial situation of the other business. This process involves a detailed look at the business, including financial reports that provide an overview of the business’s health and future revenue potential.
In a merger, the purpose of due diligence is slightly different. In this case, the financial analysis allows both companies to look at both companies’ financial standings, including assets, debts, and other aspects. This can be helpful when planning the merger because it can facilitate discussion over the best path forward to ensure that resources are being allocated effectively.
What Are the Benefits of a Merger or Acquisition?
Mergers and acquisitions are generally entered into because they will be of benefit to the business. Mergers can reduce production costs if the businesses are selling similar products, and it can allow the two companies to pool resources, technology, and talent under a new venture. Acquisitions are beneficial because they allow the buyer to increase their market share and grow their company by assuming the inventory, tech, and staff of the seller.
What Are Some Common Challenges of This Process?
One of the main challenges of mergers and acquisitions is how to effectively combine resources. It’s common for staff to be apprehensive and worried about how the business deal will impact their jobs, and they can be resistant to change. This can make it harder to move forward with a positive company culture. Clients can have similar reactions, so it’s important to pay close attention to client relationships and satisfaction during this time.
Another common challenge that comes up during acquisitions involves coming to an agreement on the valuation of the company. The seller wants to get the most money from the deal, but the buyer has the incentive to want to save money. This conflict can mean extended time in negotiations.
How Can a Business Law Attorney Help?
Mergers and acquisitions happen all the time in the business world and are positive in most cases. But that doesn’t mean they are simple to navigate. Having an attorney representing your company during a merger or acquisition can help protect your interests. An attorney can connect you to resources that can help with accurate business valuation and represent you during negotiations. Working with a business law firm also ensures that you have knowledgeable attorneys who can look over contracts and paperwork.
Whether your company is in the early stages of considering a merger or acquisition or you’ve already hit a roadblock, the team at Badmus & Associates can help. Call our office at 214-393-4917 to schedule an appointment with a business law attorney and find out what we can do to ensure your business’s rights and interests are protected.