IAG is pleased to announce the acquisition of its client Latham Stairs & Millwork, Inc. on March 31, 2017. Based in Sanger,TX Latham Stairs & Millwork has been manufactures high quality stair parts, mantelpieces, wood turnings and cedar products for many years. The business was acquired by Concierge Renovation Company, Inc.
The following article is from one of IAG’s partnering groups, AxialMarket.
When you sell your company, it’s possible, even likely, that some liability originating from the period of your ownership will befall the new owner who buys your company.
This creates for a sticky issue when you are negotiating the terms of the purchase and sale agreement in an M&A transaction. Neither party wants to assume any liability post-transaction, and the buyer will do everything they can to protect themselves against any assumed liabilities, which include, but are not limited to product, contractual, tax, and environmental liability issues. To avoid post-transaction litigation, it’s important to identify all knowable liabilities and clarify specifics around who is assuming what when drafting the purchase agreement.
In general, when the sale is structured as an asset sale, the buyer does not assume liability, whereas if it is structured as a stock sale, they do assume at least some amount of liability.
Regardless of how the sale is structured, the development of Successor Liability Laws has defined the situations when a buyer is always responsible for the liability of the previous owner, under any and all circumstances.
The Successor Liability Exceptions are:
Continuation: If the sale of the company is a continuation of the original company, the buyer can assume liabilities. Depending on which state litigation occurs, what defines a continuation can be interpreted very broadly or narrowly. Characteristics of a continuation include ownership of assets, continuation of the company officers and their roles, and inadequate consideration paid for assets.
De facto Merger: Technically speaking, a merger differs from a continuation, but in terms of successor liability, they share similar characteristics. In addition to the factors mentioned under continuation, the courts can also look to see whether operations or the physical location are the same, whether the new owner maintains the company name, and whether or not public perception has changed.
Assumed Liability: In this instance, the buyer chooses to contractually assume specified liabilities from the seller.
Fraudulent Transfer: If a seller sells the assets of its business with the intent to defraud creditors, they continue to assume liability for the company.
When selling your company, you should consult an attorney to fully understand what measures you should take to negotiate liability. Negotiations over the assumption of liabilities is usually a give and take but also can surface some real dealbreakers, so during the negotiation stage of the M&A transaction, keep the following in mind:
In the purchase agreement, clearly define to what extent the buyer should assume liability under different circumstances.
Make sure you indicate a resolution for liabilities not stipulated in the purchase agreement.
Understand your liability if you plan on continuing with the new company, either in a consulting, executive or board position.
Be sure to take into consideration how the company is paid for (cash, stock, debt), as it can impact who assumes responsibility for certain liabilities.
By assuming any post-transaction liability, you reduce the risk for the acquirer, which can impact the purchase price. An experienced buyer will often uncover much of the liability risk during due diligence, which will help avoid post-transaction complications. Moreover, a good M&A Advisor will help you navigate and negotiate your rights as a seller.
By Jamie Romero
Private equity exits are expected to increase during the second half of this year. One factor driving the growth in deal activity is the looming expiration of federal capital gains tax cuts, which is resulting in a hastening of the deal process to ensure completion by the end of the year.
With this heightened deal activity and greater scrutiny from many directions, the role of sell-side due diligence has never been more critical. Concerns brought to the surface by buy-side due diligence have increasingly delayed deals, caused them to fail or eroded the value of companies due to unanticipated issues. In this atmosphere, it is imperative to retain control of the sales process and provide a transparent, balanced and credible view of the business in order to establish trust with a potential buyer and expedite the deal timeline.
Sellers often underestimate the time and due diligence requirements of potential buyers. In certain situations an outside adviser may not be necessary; however, examples of where sell-side due diligence should be used are companies that:
• Have undergone certain transformational changes, such as leadership changes or acquiring or selling businesses or divisions
• Employ a lean accounting staff
• Have implemented or are in the process of implementing cost-saving initiatives
• Have suffered changes in customer base or employee turnover, especially in key accounting roles
• Have experienced growth
• Are considering the sale of a division or segment of a business
In these situations, sell-side due diligence allows the seller to avoid surprises, maintain control of the process and minimize disruptions, significantly increasing the probability of a successful transaction.
Learn more about sell-side due diligence, including how to alleviate the unique issues related to carve-outs and the value of uncovering and positioning tax liabilities and benefits, in McGladrey’s white paper.
By Michael J. Grossman and Patrick Conroy
You don’t always have to be an entrepreneur or form new patents to successfully grow your business. This recent article by Carol Tice will give you some ideas on how to be innovative within your current business.
In today’s marketplace, product life cycles are shrinking, global trade is leading to growing competition and the internet has lowered barriers to entry in many industries. So the need for innovation is more vital than ever.
How can you kick innovation into high gear at your small company? Here are five ideas:
Swim upstream. Is everyone in your industry doing things the same way? Maybe there’s an untapped need others are missing. For instance, one Midwestern grocery chain, Hy-Vee, recently began stocking a special checkout lane with only healthy snacks. It’s a smash-hit with health-conscious moms who shop with young children, and the chain is reportedly mulling expanding the idea to 100 stores.
Face your fear of change. We crave exciting new things as consumers, but as business owners we often fear having to implement new ideas. Create a culture that integrates and celebrates change to spur more innovative initiatives.
Listen to customers. If you feel short of creative energy, do a focus group or take an online poll. This is a key to many of Procter & Gamble’s newer products.
Add unusual services. You don’t have to be an inventor to be innovative — just add a service that isn’t traditionally offered in your industry. An example is the new Duane Reade flagship store on New York City’s Wall Street, which has such amenities as a nail bar, juice bar, sushi bar, no-appointment doctor, cell-phone charging station and electronic stock-exchange ticker.
Get behind your idea. Don’t be like Kodak, sitting on your digital camera invention until competitors eat your lunch. Once you’ve got an innovative idea, put it out there and promote it with all you’ve got.