Mergers and Acquisitions

Mergers and Acquisitions

Buying a business is an exciting but major undertaking. Business ownership takes dedication, time, sweat and money.

If you are thinking of merging your business with another business, you should have many questions. Is the other business who they say they are? Are the financials supplied by them real or was this information manufactured?  Will this business still be around in a few months if you do not merge? Will existing litigation in which this business is involved bankrupt the business – and yours if you do decide to merge? What risks are you exposed too?

There are many variables that need to be considered before you buy a business or before you merge your company. Your existing business took many years to build and probably a lot of tears and sacrifices to get to where you are now. Maybe you are considering investing your life savings and pension into a new business venture? 

Recently, in a matter of ours, our Client was in the process of buying an existing business that looked great on paper. When we started our due diligence investigation we discovered that this business’ lease agreement was coming to an end and the seller knew the lease would not be renewed. The Seller was ‘dumping’ the business on our Client who would have suffered a major financial blow if she had proceeded with the purchase without a due diligence investigation.

If you are considering buying a business or merging your existing business with another business you must conduct legal due diligence. This is an absolute necessity!

As Corporate and Commercial Attorneys we assist our Clients with legal due diligence investigations when they want to buy a business or merge their company with another.

These investigations include us looking at issues such as:

Business Entity / Corporate Recor

  • Are the Company’s financial records and files in order?
  • Is the Company in good standing?
  • Are there any liens in place, or reasons why the sale may not be able to go ahead?
  • We look at the Memorandum of Incorporation, Partnership Agreements and Share Registers.

Financials

  • Are there Credit Agreements, Guarantees, Inter-Company loans?

Compliance

  • Are there any permits or licences required in terms of the type of business?
  • Does the business operate nationally or internationally – does this effect compliance in other parts of the world?
  • Are there regulatory concerns?

Intellectual Property / Transfer of Assets  

  •   Schedules of all Intellectual Property (IP), such as Trademarks, Licence Agreements.
  •   Confirmation that rights have been registered. Does the Domain belong to the Company?

Material Contracts

  •   Material Contracts must be reviewed to ensure that they are enforceable and assignable and to ensure that they do not automatically terminate in the event of the sale of the business.

Employment and Human Resources matters

  • The records of the Company must be reviewed relating to information such as sick leave, salaries, and benefits.
  • The relationship with Unions must be checked.
  • The Disciplinary Code and Grievance Procedures must be reviewed. 

Litigation

  • Any litigation matters must be reviewed and claims must be dealt with in the Purchase Agreement. Issues such as insurance pay-outs must be discussed and dealt with.

Property and Assets

  • Schedule of assets and liabilities together with supporting documents such as Hire Purchase Agreements and Lease Agreements.

Technology Diligence

  • Technology is becoming more and more important in business.
  • We look at things such as back-ups of key records and data recovery plans.

It is also important to do a Financial Due Diligence Investigation by experts in this field. We have existing relationships with Financial Experts so that the legal and financial due diligence investigations can be done simultaneously.  

When you buy a business or merge your existing company with another you need to “Trust but Verify”. A quote made famous by President Ronald Reagan.  

After the Due Diligence is completed, the buyer or the person who is considering a merger may decide not to proceed with the transaction, reduce the Purchase Price or simply build in contingencies in the Purchase Agreement.

The above is not an exhaustive list of Due Diligence topics as these investigations are tailored for specific businesses.

It does not matter about the actual size of the transaction, it is essential that Due Diligence investigations are done to protect the buyer or to safeguard your company when you are planning a merger.

Contact us before you commit your lifesavings into a business. We are happy to assist you with this important decision. 

 

Martin Vermaak

Practising Attorney