Mergers & Acquisitions: Due Diligence Process; Provision Of Information; Third-Party Consents
After preliminary agreement by the parties usually in the form of a Letter of Intent, the merger and acquisitions attorneys for both sides will be involved in the due diligence process and in negotiating and drafting the final definitive agreements for closing. Legal counsel for seller will usually be involved in organizing and presenting key seller information to buyer’s legal counsel in a fashion suitable for attachment to the final definitive agreements. Great care should be taken in providing such information as such information will often constitute a substantial portion of seller’s warranties and representations in the transaction.
Oftentimes, actions or consents of third parties may be required to properly accomplish the transfer of the business from the seller to the buyer. Early initiation of all matters involving third party action or consent is imperative with respect to a timely closing. Third party action or consent is often involved where there are third party liens that need to be released, real estate leases to be assumed, or customer/vendor/franchisor/licensor agreements to be assigned. Title policy commitments and UCC searches should be obtained early with respect to any real estate or personal property or equipment to be acquired in the transaction in case various steps need to be taken to clear title to these assets. All environmental studies, structural inspections, and heavy equipment testing should be accomplished early, as well.
An experienced mergers and acquisitions attorney can be instrumental in all of these activities to help ensure that clear title passes from seller to buyer and that parties are protected by providing proper information supporting warranties and representations of the parties, particularly the seller.
Other Closing Documents
Aside from the definitive basic agreement, usually in the form of an asset purchase agreement, a stock purchase agreement, or a merger or conversion agreement, there are other numerous important legal documents associated with the business acquisition.
There may be various documents relating to title of the purchased assets and the release or assumption of prior liens, such as bills of sale, warranty deeds, releases of liens and UCC-3 termination statements. In the case of a seller financed or leveraged buyout transaction, there may be various documents evidencing seller’s right to deferred payments, such as promissory notes, security agreements, deeds of trust, UCC-1 financing statements, and/or guarantee agreements.
In connection with leased assets, there may be lease agreements, estoppel certificates from existing landlords, and assignments of leases, including landlord consents. For intellectual property rights, there may be patent assignments and license agreements to be obtained. Oftentimes, there are restrictive covenant agreements, providing for covenants not to compete and nonsolicitation prohibitions, as well as employment agreements and/or consulting agreements, whereby the seller, or individuals affiliated with the seller, continue to work for, and receive payments from, the buyer in the future.
The contents of any “earnout” agreements, usually evidencing the parameters of conditional additional consideration to be paid to seller upon achievement of certain goals, must be drafted precisely and with care, as well. Any provision for personal goodwill, providing substantial tax savings for the seller under the right circumstances, must be properly included within the definitive agreements by the mergers and acquisitions attorneys representing the parties in the transaction.
Contact An Attorney Who Has Decades Of Experience
Attorney Robert M. Mendell has more than 40 years of business law experience, and is Board Certified in Tax Law by the Texas Board of Legal Specialization. Call 713-888-0700 to schedule a consultation at the Houston office, or contact Robert M. Mendell online.