Merging companies together or taking over another business can help businesses adapt or continue to grow. Mergers and acquisitions in California can be complex and involved and generally require the expertise of an attorney with experience dealing in mergers and acquisitions. Contact an experienced business lawyer about handling your company's merger or business acquisition in California.
Merger and Acquisition Issues for California Businesses
There are many areas for concern in M&A business transactions, especially in California. Failure to properly prepare for all contingencies can result in delays, denied approval, lawsuits, and liability. Issues to consider in California M&As include:
- Federal Approval
- California State Approval
- Acquisition Agreements
- M&A Agreement Disputes
- Negotiating Agreements
- Shareholder Approval
- Non-Compete Clauses
- Shareholder Lawsuits
Corporate Mergers in California
There are different types of corporate mergers in California, including:
- Horizontal Merger
- Vertical Merger
- Concentric Merger
A horizontal merger generally involves merging two competing companies to increase market share. These may be companies that offer the same types of services in the same area. A horizontal merger can combine the customer base of each company to increase cost-savings and pool resources.
A vertical merger combines companies that operate in the same type of business but at different stages of the supply chain. This could be an orange grower that merges with a juice company both grow fruit and make juice from the fruit to sell. Vertical mergers can provide more predictable supply and demand and price stability for companies.
A concentric merger generally combines businesses that may be in a related industry but do not necessarily have a connected relationship. Also called congeneric mergers, these may be complimentary mergers that are intended to broaden the market base or increase marketing power.
Mergers can involve a purchase merger where one company buys the other company. Alternatively, a consolidation merger results in a new company where the other companies are combined under the new company.
Acquisitions for California Companies
Acquisitions can involve asset purchase or stock purchase. In an asset purchase, the buyer buys the assets of the other company. Generally, this leaves the seller with the seller's original cash and long-term debt obligations (debt free/cash free). In a stock purchase, the buyer purchases the selling company's stock and essentially takes over the seller's business, including assets and liabilities.
There are advantages and disadvantages to stock and asset purchase plans in acquisitions, including tax benefits, liability transfer, securities concerns, valuations, shareholder concerns, changing title, and re-negotiating contracts.
Negotiating M&A Agreements
When considering merging with another company or taking over another business, negotiating the agreement is important to protect business assets, reduce the likelihood of liability, and make sure the shareholders are not being taken for a ride. In many mergers, the business owners are optimistic about their future, combining resources, and expanding market.
An experienced lawyer will consider the worst-case scenarios and negotiate terms to protect their client and account for all contingencies. This includes identifying possible legal risks, financial uncertainty of the other company, and whether there may be other interested parties who can provide a better offer.
Spin-Offs or Breaking Up a Company
While companies generally merge or acquire other businesses as a way to increase market share, market power, consolidate resources, and reduce redundancies, in some situations breaking off a sector of the company into a new business can also be beneficial to shareholders. This may involve a changing market, specialization, or separating more volatile parts of the company. The issues that come up in mergers and acquisitions can be similar in spin-offs, especially when the changes affect employees, retirement plans, customer and supplier contracts, and other issues. Talk to your attorney about whether spinning off a unit of the company as a separate company can benefit your business.
Federal and State Approval
Depending on the type of industry and size of the company, a merger or acquisition may need to be approved by the Federal Trade Commission (FTC) and/or Securities and Exchange Commission (SEC) to ensure they are compliant with SEC and FTC laws.
In California, the merger or acquisition generally requires filing for approval with the California Secretary of State (CA SOS). The filing requirements in California depend, in part, on whether the company or companies are domiciled in California.
Mergers and Acquisitions for Bakersfield Companies
At Zimmer & Melton LLP, we have represented shareholders and businesses who are combining or buying out other businesses to help their companies grow. Contact our office in Bakersfield with any questions about mergers, acquisitions, or other issues facing your California company.