Tip 1: Determine the Right Structure
Planning and structuring the deal is just as important as the deal itself. Deal making is an art of leverage, negotiations, and legal competency. There are various ways the deal can be structured such as Asset Purchase, Stock Purchase, or Merger. In an Asset Purchase, the assets of a business are transferred from the seller to the buyer. Alternatively, in Private Stock Acquisitions, the seller privately and directly conveys her interest in the stocks of the entity to the buyer. In a Merger, the acquiring company and the target company are combined and become one. The right structure depends on the deal.
Tip 2: Draft Effective Contracts
The contract is your opportunity to ensure parties have Met of the Minds and that parties understand the terms similarly. Most Importantly, the contract gives you the chance to dictate favorable terms. There is no such phenomenon as a “Standard Contract” or a template that fits every situation. Litigating a poorly drafted contract is a lot more costly than drafting the right one. Smart businesses invest in structuring the deal and having the right contract rather than fighting out misunderstandings in court.
Tip 3: Perform Extensive Due Diligence
Proper due diligence minimizes the risk of acquisition. This is arguably the most important part of the deal and where it will make or break you. In your due diligence, request applicable disclosures on various matters including accounting, property rights, employment, inventory, existing contracts, and more.
Tip 4: Consider the Tax Implications
Often the most tax favorable scenario depends on the structure of the deal. The buyers or sellers may have competing interests on how the terms address obligations to Uncle Sam.
Tip 5: Have the Right Team
You can’t do this alone. You need a skilled team of professionals to negotiate effectively, contract wisely and perform due diligence meticulously. Invest in the right relationships.