Mergers and acquisitions in Wisconsin can be an important strategy to fulfill a number of company goals. You could be a small company or a large one, and a merger or acquisition can still benefit you. On the other hand, mistakes during a merger or acquisition are often made, and these can lead to delays, conflict, and litigation.
At Heritage Law Office, our mergers and acquisitions attorney in Wisconsin is here to help you work towards a smooth transition to avoid merger and acquisition problems. Further, we can assist with all other business matters that you might need after the merger or acquisition. Contact us today at 414-253-8500 or fill out our online form to schedule a free consultation.
What Are Mergers and Acquisitions of Small Businesses?
Mergers and acquisitions (M&A) is an umbrella term used to describe when either (1) two or more businesses merge or consolidate; or (2) one business acquires another business.
- A merger is when two businesses combine to form a single entity. To do this, one business absorbs the others' assets and liabilities under its name and the second business shuts down. A merger may help a business reduce its costs and grow its market share. This process is typically mutually beneficial. The two businesses joined as one may choose a new company name that better reflects the new company's mission, or they may choose to maintain one of the companies' names to benefit from brand awareness.
- Under a consolidation, two or more businesses come together to create a new entity that takes on the assets, liabilities, and financial resources of both businesses. Businesses often consolidate to increase profitability and take advantage of cooperation, rather than competition.
- An acquisition occurs when one business buys part or all of a second business' stock or assets. Oftentimes, this process can involve conflict or a hostile takeover. The company acquiring the other business usually keeps its business name, legal structure, and operations. As such, the acquired business legally ceases to exist.
While often discussed in the context of large conglomerates or multinational corporations, M&As can involve businesses of any size, including small businesses.
Before entering into an M&A, it's essential to draft a detailed merger and acquisition agreement.
This document includes important information about the event, such as:
- The businesses' details
- What assets or stock are being purchased
- A list of the assets and liabilities of the business being bought (in an acquisition) or both businesses (in a merger or consolidation)
- The level of access each party will have to the other's financial information for due diligence
- Any other terms of the agreement
This agreement is important and can be a source of profit or problems. At Heritage Law Office, our M&A attorney will review, draft, and negotiate a strong agreement with terms and conditions clearly and thoroughly outlined.
Should Your Small Business Consider M&A in Wisconsin?
There are several reasons why an M&A may be relevant to your small business. A merger or acquisition could allow you to:
- Expand your market share – Merging with or acquiring companies with an existing market share or complementary business can give you access to better growth opportunities, including different geographic markets. By sharing expertise and experience, you can expand your business immediately rather than building a new business from scratch.
- Increase profitability – Combining two smaller businesses may allow you to lower labor costs and take advantage of economies of scale to grow your profits. When companies merge, they can eliminate extraneous staff to reduce labor costs while purchasing raw materials and/or supplies at higher volumes to reduce overall costs. These savings can be passed on to consumers.
- Update a product, service, or business model – If your business is unable to keep up with technological advancements, another business may be interested in acquiring it. This avoids your business from sustaining continued losses. Or you may consider an M&A with another business to access new technologies.
- Engage in corporate restructuring – If you are considering restructuring debts and equity to reduce loan costs, M&As may help you to do so.
- Increase financial resources – When companies merge, they pool their financial resources. This increase in financial leverage may open the door to new investment opportunities.
Entering into an M&A is a significant decision to make in the life of a business, so it's important to carefully reflect on your reasons for doing so.
Five Things to Consider Before a Merger or Acquisition in Wisconsin
In addition to being clear on your goals, there is a range of considerations to turn your mind to before entering into an M&A agreement. Listed below are a few of these considerations.
- Business valuation. If you're considering merging with or acquiring another business, you should first find out how much it's worth. A formal business appraisal will help you assess whether it's worth proceeding.
- Good standing. Before entering into an M&A agreement, you should confirm the parties are in good standing—they are valid and certifiable—in the state where they were formed. If they are not, it may indicate financial issues and lead to problems when filing the necessary M&A paperwork.
- Company culture. When two firms combine or one is acquired by another, there can be a significant disconnect between the cultures. It's important to spend time strategizing how to merge different company cultures to ensure a smooth transition.
- Intellectual property. If you're acquiring a company, you should check its intellectual property assets and whether they are protected by trademarks, copyrights, or patents. Also confirm whether the business you are acquiring has any outstanding intellectual property against it, as these can take a lot of time and resources to resolve.
- Anti-money laundering. If the business you're merging with or acquiring does any business in foreign countries, you must consider anti-money laundering laws and regulations. This includes confirming whether the other business engages with banned individuals or companies.
Even for small businesses, M&As can be complex, lengthy, and potentially risky business transactions requiring a large amount of due diligence. For these reasons, it's worth seeking professional financial and legal advice before entering into an M&A.
Contact an M&A Attorney in Wisconsin Today
Mergers and acquisitions can be a strategy for growth, but to do it right, you must plan and consider all the legal implications. At Heritage Law Office, our mergers and acquisitions lawyer in Wisconsin provides comprehensive business services to our clients. If a merger or acquisition is in your future, we will guide you through the process and act proactively. Contact us by filling out the online form or calling us at 414-253-8500 to schedule a free consultation. We are here to provide competent, quality business legal services that give your company a competitive edge.
Frequently Asked Questions (FAQs)
1. What are mergers and acquisitions (M&As)?
Mergers and acquisitions (M&As) refer to business strategies wherein either two or more businesses consolidate (merge) or one business takes over another (acquisition). These strategies are not exclusive to large corporations; even small businesses can undergo M&As to meet their strategic goals.
2. Why might a business consider a merger or acquisition?
A merger or acquisition can be an effective way to achieve various business objectives. These might include expanding market reach, adding new products or services, gaining competitive advantages, improving operational efficiencies, or even diversifying risk. Each company's reasons will be unique, and understanding these motives is key to a successful M&A.
3. What is an M&A agreement and why is it important?
An M&A agreement is a detailed document outlining the terms and conditions of a merger or acquisition. It contains crucial information about the transaction, such as the structure of the deal, the purchase price, and terms of payment, any representations and warranties, and post-closing obligations. A well-drafted agreement helps mitigate risks, avoids misunderstandings, and provides a clear roadmap for the entire process.
4. What role does a lawyer play in a merger or acquisition?
An experienced M&A lawyer provides invaluable assistance throughout the merger or acquisition process. They can help with due diligence, draft and negotiate the terms of the M&A agreement, address regulatory issues, and guide the parties through the closing process. Their experience can help prevent legal pitfalls, minimize risk, and ensure a smooth transition.
5. What should a business consider before entering into an M&A?
Before entering into an M&A, a business should reflect on its strategic goals and conduct comprehensive due diligence. This includes assessing the target company's financial health, understanding their market position, examining legal and regulatory implications, and evaluating potential synergies. Engaging with a competent M&A lawyer, like the ones at Heritage Law Office, can help in navigating these considerations.
6. What are the legal requirements when buying or selling a business in Wisconsin?
The legal requirements when buying or selling a business in Wisconsin can vary depending on the specifics of the transaction. Generally, they include conducting a proper business valuation, carrying out due diligence, entering into a legally binding purchase agreement, and obtaining necessary permits or licenses. Non-compliance can lead to legal complications, which is why it's advised to engage with a knowledgeable business law attorney.
7. How can a business attorney assist in buying or selling a business?
A business attorney can be invaluable when buying or selling a business. They can guide you through the entire transaction process, help with the valuation, conduct due diligence, draft and negotiate purchase agreements, and ensure all legal requirements are met. Their experience can help prevent legal pitfalls, reduce risks, and ensure a smooth transaction.
8. What is due diligence and why is it important in a business sale or purchase?
Due diligence is a thorough investigation of the business being sold, usually conducted by the buyer's attorney. It involves a comprehensive review of the business's financial records, legal documents, operational practices, and market conditions. The goal is to confirm the commercial value and viability of the business, identify any potential risks, and validate the information provided by the seller. It is a crucial step in the process to ensure a fair and transparent transaction.
9. Why is a business valuation important when selling or buying a business?
A business valuation provides an estimate of the economic value of a company. For sellers, it helps determine a realistic asking price. For buyers, it provides a basis for negotiation and ensures they don't overpay. A professional business appraiser usually conducts the valuation, considering various factors such as financial performance, market conditions, and business operations.
10 What are some common legal issues that can arise when buying or selling a business?
Common legal issues that may arise when buying or selling a business include discrepancies found during due diligence, disputes over valuation, breaches of the purchase agreement, non-compliance with regulatory requirements, and issues with transferring permits or licenses. It's crucial to engage a business attorney who can foresee and address these issues, ensuring a successful transaction.