Sep 13, 201812:53 PMExit Stage Right
with Martha Sullivan
What happens after the champagne is popped? Part 3
(page 1 of 2)
In the prior two installments of the blog What happens after the champagne is popped? Part 1 and Part 2, we discussed some of the important elements to consider and prepare for after a buyer closes an asset purchase transaction. In this installment, we shift gears and assume the business acquisition was structured as a stock purchase such as in a family and some employee transitions.
As a refresher, in a transaction structured as an asset purchase, the buyer is acquiring some if not all of the assets of the seller, and assuming some, if not all of its liabilities. The asset approach allows for buyer selectivity in terms of the liabilities they are willing to accept. The employees are all fired and presumably rehired unless you know, as the buyer, that cuts or changes will be made immediately.
In a deal structured as a stock purchase, the buyer doesn’t have the luxury of picking and choosing which assets and liabilities she or he is going to assume. The employees arrive on the first day just like they always did. Just like when you buy shares in Apple or Facebook, you assume the risks and rewards of ownership — hook, line, and sinker.
This approach makes some of the day one activities and needs described earlier in the series unnecessary. For example, the employees remain employed so there is no need to rehire, re-establish benefits, or complete paperwork in that regard. Daily operations may continue as always if the new owner chooses, and the information systems used the day before the close may continue to be used the day after with no modification.
Nonetheless, a change in stock ownership, particularly with a change in control, warrants similar plans for day one and the first 100 days. Communication with employees, impacted customers, and suppliers is just as important.
Specific items to consider that are unique to acquisitions structured as stock deals include:
- If the deal was for less than 100% of the shares, what role if any will the original shareholder(s) play in the “new” company? Has that been agreed to ahead of time in clear and certain terms? How will decision-making be handled in the future?
- What risks did the new owner take on that may be problematic? For example, are there contingent liabilities lurking such as warranty issues, lawsuits, or environmental concerns? Are there underperforming products, territories, or employees that need to be addressed right away?
- Are there contracts or agreements that were assumed that are challenging? What issues around the change in control arose in due diligence? Are there particular vendors or customers that need continued attention due to language in the agreements?
- What employment changes are to be made? Are there employment law risks that are present that need to be managed? For example, how will the employer ensure that terminations are handled well, and any risk of employee claims of discrimination or wrongful discharge is mitigated?