The first type of merger and acquisition (M&A) transaction we introduced you to was an asset purchase transaction. The second type of M&A transaction you should be aware of is a stock purchase transaction. The next type of M&A transaction we will introduce you to is a merger. While each form or transaction has its advantages and disadvantages, each type of transaction is useful to allow shareholders of a private company to obtain liquidity for their interest in the company.
In a stock purchase transaction, the buyer purchases all or a portion of the outstanding shares of a target company’s capital stock from the target’s shareholders in exchange for cash, stock or other consideration. While it is technically not necessary for the target company to be a party to the transaction, as a practical matter the buyer will often want the target to be a party to the purchase agreement so it can require the company to make representations and warranties about the its business, operations and financial statements, and agree to continue to operate in a certain manner between the time the purchase agreement is signed and the transaction is completed.
When a stock purchase transaction is completed the target company continues to exist, but has different owners. So unlike an asset purchase, there is no actual transfer of the target company’s contracts, permits or other assets. There is also no need to secure any third party consents to the transaction unless there is a specific contractual provision that requires consent when there is a change of control of the target company (i.e., when a majority of the ownership changes).
The stock purchase transaction is usually less complicated than an asset purchase transaction because the target’s corporate form, business organization, and important relationships remain unchanged. Also, there is no transfer of particular assets or assumption of liabilities from one corporation to another. However, note that additional considerations can complicate the deal quickly. We will talk about some of these in future posts.
As I have mentioned before, Finkel Law Group, with offices in San Francisco and Walnut Creek, has a thriving M&A practice that continues to grow as both buyers and sellers gain confidence in the direction the economy is heading, the impact of this growth on their particular market segments, and the increasing availability of capital to finance transactions of all sizes. Over the last 16 years, we have assisted buyers and sellers in industries as diverse as software, financial services, toys, agriculture, ecommerce, automobiles, auto parts distributors, and pet supplies, successfully navigate through all forms of M&A transactions.
If you need intelligent, insightful, conscientious and cost-effective legal counsel to assist you with an M&A transaction you are contemplating, then please contact us at (415) 252-9600, (925) 274-9600 or info@finkellawgrou