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Could an Acquisition Help Your Business Grow in 2019?

Stephenson Fournier
Houston, Texas

On behalf of Stephenson Fournier posted in Business Transactions on Monday, January 7, 2019.

2018 was a great year for businesses in Texas. The 12th annual CNBC America’s Top States for Business ranked the state as top in the nation, an honor the state has earned three times in the past.

Businesses in the state will continue to benefit from business-friendly regulations and relatively low business taxes to grow in 2019. For some businesses, an acquisition is the best way to expand. Two acquisition options that could help your business include:

Option #1: An asset purchase. An asset purchase allows the buyer to purchase specific assets from the target business and to select only clearly enumerated liabilities. This transaction structrure essentially separates the seller’s assets and liabilities. If the seller has a liability that the buyer does not expressly assume, the seller will generally remain primarily liable after the transaction is complete.

Option #2: An equity or stock purchase. Unlike an asset purchase, a stock or equity purchase does not separate a seller’s assets and liabilities. With this structure, the buyer assumes responsibility for all liabilities. Risk for the buyer can be reduced by paying off known liabilities at closing, escrowing a portion of the purchase price to pay for unknown debts that may show up after closing, and drafting strong indemnities and covenants in the purchase documents.

An equity purchase may also be used to force out small equity owners in some cases. A recent publication by the American Bar Association describes this tactic. Essentially, it involves buying a majority share and “squeezing out” the minority owners through a forced sale. This is not a structure that can be used in all circumstances. Those considering this option are wise to first seek legal counsel to discuss the details of the strategy and ensure it works for your business needs.

These are just two strategies that can help your business grow in 2019. Depending on your business goals, a different strategy may be more appropriate. An attorney experienced in these matters can review your business strategy and provide guidance on the best course for the new year.

The general information contained herein is intended for informational purposes only. It is not intended to be, and should not be construed as, legal advice or legal opinion on any specific facts or circumstances.

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