Initial Client Meeting

The first step in the process is to setup a meeting with your lawyer to talk about the potential sale or purchase. During this meeting we discuss such items as: your reason for purchase/sale; the business partners involved; the clients goals and needs; financing options; potential transaction structures; Letters of Intent; and due diligence issues.

Letter of Intent / Term Sheet

After gathering this basic information, if a Letter of Intent has already been drafted or received, we usually start preparing for the due diligence phase of the transaction, where both sides provide requested information and documentation related to the business. If a Letter of Intent has not been drafted or received, we work on getting the purchaser and seller together to work out the major deal points and then incorporate them into the Letter of Intent/Term Sheet.

Due Diligence and Disclosures

Next, due diligence is performed. During this phase, the purchaser is making sure that the business is in the condition originally described by the seller. We perform UCC searches to make sure that the assets are owned clear of any liens or other encumbrances. We perform litigation searches to make sure there is not any pending undisclosed litigation against the seller. We obtain and review copies of all contracts, leases, and licenses that the seller is a party to. We obtain information on all possible liabilities that the seller may have. This information is often used to draft disclosure schedules given to each party, so that the flow of information between both happens in an orderly, good faith manner.

Once due diligence is complete we reevaluate the transaction structure to make sure it still meets the needs of the client. If you are looking to sell an Austin-area business or if you are looking to purchase an Austin-area business, there are essentially three basic structures that nearly all acquisitions follow:

• Asset Purchase and Sale
• Stock Purchase and Sale
• Merger

Asset Purchase and Sale

An asset purchase transaction usually involves the buyer obtaining all or part of the seller’s assets, but none or few of the seller’s liabilities. Both acquired assets and liabilities must be expressly agreed upon in the Asset Purchase Agreement. Assets include plant, property, equipment, inventory, furniture, corporate name, goodwill, and intellectual property such as Trademarks, Copyrights, Trade Secrets, and Patents. Liabilities assumed usually include only those that are attached to an asset that is being purchased. Care must be taken to avoid any potential “fraudulent transfer” of asset issues.

Stock Purchase and Sale

An outright stock purchase transaction involves the purchase of all the seller’s shares of stock in the company. This type of purchase differs from an asset purchase in that the purchaser of the stock takes ownership of the entire company, both assets and liabilities. If you are buying out a publicly-traded company, one must strictly comply with federal security laws. This buy out process involves the issuance of a “tender offer” by the buyer, where the buyer publicly solicits the seller’s shares at a given price.

Merger

A merger involves two companies combining to form one company. The one surviving company assumes and owns all of the liabilities and assets of both companies. This process is performed by obtaining a “certificate of merger” from the appropriate states. To obtain a certificate of merger, one must create a merger plan and file it with the appropriate state agency along with the merger application and entity formation paperwork.

Acquisition Agreement Drafting

Regardless of the structure of the transaction, an acquisition agreement must be drafted to cover the transaction. Depending on the type of transaction this will be called an Asset Purchase Agreement, a Stock Purchase Agreement, or a Merger Agreement / Merger Plan. All of these agreements are similar and contain the same four major sections: 1) Representation and Warranties (often referred to as “Reps and Warranties”); 2) Covenants; 3) Conditions to Closing; and 4) Indemnification. Depending on the size and scope of the transaction, you might also encounter: Disclosure Schedules, IP Assignments, Lease Assignments, Bills of Sale, Noncompete Agreements, Employment Agreements, and other related documents.

Closing

The final step in the process is the closing. At the closing, all agreements are signed, money and or stock changes hands, documents are obtained, keys and property are handed over, and everything is checked and double-checked for accuracy.