In Show 035 – Mergers and Acquisitions originally broadcast on Facebook Live on Wednesday 22 November 2017 we explore this interesting topic.
One of the most common ways to grow your business is through a merger or an acquisition. Today on the show we wanted to discuss some of the benefits and risks of taking that route. Mergers and acquisitions are terms that are used interchangeably but they are actually quite different. A merger occurs when two companies decide to combine their businesses into a new entity. An acquisition, on the other hand, takes place when one company buys another outright.
The advantage of using mergers and acquisitions is gaining a firm that has already been operating successfully. You can acquire the structure and market share of that company overnight. That said you need to get advice before heading down that road.
If you’re using your existing business to purchase another company all the risk gets combined. If one gets sued then the other is going to be affected. This can be a massive problem if you’re entering a high-risk sector. The best way to avoid this problem is to ensure that there is a separate legal entity for all your business assets. That way problems with one can’t infect the other.
When you’re buying a business you are going to have an opportunity to investigate that company. If you don’t know what you’re buying you’re guaranteed to fail. There is no one definition for due diligence it’s a very broad term and deliberately so. You have to talk to your lawyer to make sure that your due diligence is correct. Also, you have to ensure that the due diligence part of the sale contract is up to snuff. Looking at the history of the business, the staff and potential liability issues are all critical parts of getting this right.
How it can go wrong
We had a client recently who purchased a cafe in Brisbane. They paid $50 thousand for the business. Only after the sale did they realize that the previous owners did not have a license to operate that business. The name of the business was not registered. The premises were not up to code and the landlord owned all the equipment inside. They had to pay another $20 thousand to get the business operational. Without doing a proper investigation things can go badly off the rails.
IP is really the value of the business you’re buying. What are you actually buying? Is there a registered trademark? Can it be registered? What about patents? These are all things that you need to have answers for before you purchase another business.
More about this Show
We started Business Legal Lifecycle to create a simple way for you to understand complex legal terms. Most importantly we want to help you to develop a plan to take your business successfully into the future. There’s a startling statistic the underscores the importance of developing a solid plan. The majority of business owners are just seven months away from losing everything. A single aspect of your business that is not set-up correctly can shut down your whole operation very quickly. Legal advice is not cheap and even when you can afford it there is often a divide between lawyers and their clients. We want to close that gap once and for all. We want to put legal knowledge and tools into your hand to prevent the worst from happening to you.
Twice a week we are going to deliver those tools right to your home or office with Business Legal Lifecycle TV. We’ll start the week with Fast Fix Monday, a short 5-10 minute video that will tackle a single issue that businesses have to deal with. Then on Wednesday’s our main show will feature with more fulsome discussions and interviews all delivered in a straightforward and easy to understand format.