Mergers & Acquisitions
Every deal has
a better version
of itself.
Buying or selling a business is one of the highest-stakes transactions you will navigate. Structure, due diligence, and contract drafting determine how much value you keep, and how much risk you carry out the door. We work on both sides of the table.
Foundation of Every Deal
Deal Structure
The choice between an asset purchase and a stock purchase is one of the most consequential decisions in any M&A transaction. The right answer depends on your position, your tax situation, and what the other side will accept.
| Factor | Asset PurchaseAcquire selected assets and liabilities | Stock PurchaseAcquire ownership of the entity |
|---|---|---|
| Tax Treatment: Buyer | Stepped-up basis on acquired assets; future depreciation and amortization benefits. Generally preferred by buyers. | Carryover basis in target stock. No immediate tax benefit on asset values. Buyer inherits the target's tax history. |
| Tax Treatment: Seller | Gains taxed at ordinary income rates on most assets (inventory, receivables, non-compete payments); capital gains rates on goodwill and certain intangibles. Often less favorable. | Gains taxed at capital gains rates on appreciated stock. Generally preferred by sellers. QSBS exclusion (IRC §1202) may apply for qualified small business stock. |
| Liability Exposure: Buyer | Buyer generally does not assume pre-closing liabilities (except those expressly assumed). Successor liability doctrines may still apply in limited circumstances. | Buyer acquires the entire entity, including all undisclosed, contingent, and historical liabilities. Rep and warranty insurance and indemnification provisions are essential. |
| Complexity | More complex to execute: each asset and contract must be identified, valued, and transferred individually. Third-party consents often required for each asset class. | Operationally simpler: ownership of the entity transfers as a whole. Contracts, licenses, and permits generally remain in place without separate assignment. |
| Third-Party Consents | Required for most material contracts, leases, and licenses. Sellers must obtain consent from counterparties to assign each agreement to the buyer. | Fewer consents typically required, as the legal entity holding the contracts does not change. Change-of-control provisions in key contracts may still trigger consent requirements. |
Merger Structures
In addition to asset and stock purchases, parties can use merger mechanics, including forward triangular mergers (target merges into buyer subsidiary), reverse triangular mergers (buyer subsidiary merges into target, target survives as buyer subsidiary), and statutory mergers. Triangular merger structures are common in public company M&A and in deals where the buyer wants to preserve the target as a subsidiary while avoiding the consent requirements of a direct asset transfer. The right structure is driven by tax, regulatory, and operational considerations specific to each deal.
From Start to Close
The M&A Process
A well-run transaction does not happen by accident. Each stage has specific legal work, decisions, and leverage points. Understanding the process helps you navigate it, and avoid the mistakes that derail otherwise solid deals.
Deal Sourcing & NDA
Parties identify each other through brokers, investment bankers, direct outreach, or existing relationships. Before any substantive information is exchanged, the parties execute a non-disclosure agreement (NDA) establishing confidentiality obligations for both sides.
The NDA scope matters. Key negotiated terms include the definition of confidential information, permitted disclosures, standstill provisions (restricting the buyer from acquiring shares during the process), and non-solicitation of employees. A poorly drafted NDA can leave sensitive business information inadequately protected.
Letter of Intent
The letter of intent (LOI) memorializes the principal deal terms the parties have agreed to in principle: purchase price, deal structure (asset vs. stock), payment terms (cash, notes, earnouts), key conditions, and exclusivity. The LOI is typically non-binding on the substantive deal terms but binding on exclusivity and confidentiality.
The LOI sets the anchor for every subsequent negotiation. Price adjustments, representations, and indemnification caps are all heavily influenced by positions taken in the LOI. Buyers want flexibility; sellers want certainty. We help clients understand which LOI terms to fight for and which to concede.
Due Diligence
Following LOI execution, the buyer conducts a comprehensive review of the target's legal, financial, tax, operational, and regulatory standing. The seller populates a virtual data room with requested documents, and the buyer's advisors analyze findings. Material issues surfaced during diligence affect price, structure, and contract protections.
Due diligence is not just about finding problems; it is about understanding what representations the seller can credibly make and what indemnification protections are necessary. Diligence findings directly shape the purchase agreement's rep and warranty language, disclosure schedules, and post-closing remedies.
Purchase Agreement
The definitive purchase agreement (APA for asset deals, SPA for stock deals) is the central legal document of the transaction. It memorializes the deal terms, the representations and warranties each party makes about themselves and the business, the covenants governing conduct between signing and closing, and the indemnification framework for post-closing disputes.
Key negotiated provisions: representations and warranty scope and survival periods, indemnification caps and baskets (deductible and tipping basket structures), material adverse effect (MAE) definitions, closing conditions, and dispute resolution mechanisms. The indemnification provisions are where deals most frequently bog down.
Closing
Closing is the simultaneous exchange of executed documents and payment of the purchase price. Pre-closing deliverables include officer certificates, board and shareholder consents, third-party consents, payoff letters for outstanding debt, and release of liens. The closing mechanics must be carefully choreographed, especially when escrow, rollover equity, or holdbacks are involved.
A closing checklist governs every deliverable from both sides. We manage the checklist, coordinate with escrow and lenders, ensure all conditions precedent have been satisfied, and confirm that purchase price adjustments (working capital, debt, cash) are calculated correctly at closing.
Post-Closing Integration
After closing, the parties must address post-closing obligations: purchase price adjustments based on closing-date working capital, transition services under any TSA, management retention, and integration of systems, employees, and operations. Indemnification claims, if any, are governed by the survival and basket provisions in the purchase agreement.
Working capital adjustments are a common source of post-closing disputes. The target mechanism (what counts as working capital, how it is calculated, what's excluded) must be precisely defined in the purchase agreement. We draft these provisions to minimize ambiguity and represent clients through the post-closing adjustment process.
What We Review
Due Diligence Deep Dive
Diligence is not a checklist exercise; it is the foundation of every representation, every indemnification provision, and every dollar of purchase price. Here is what we look at across each category, and why it matters.
Legal & Contracts
We review the target's material contracts (customer agreements, supplier contracts, licensing agreements, and service agreements) for assignment restrictions, change-of-control provisions, termination rights, and unusual indemnification obligations. We also review corporate records (formation documents, board minutes, cap table), pending or threatened litigation, and any regulatory proceedings.
Material contracts, IP assignments, employment agreements, non-compete agreements, pending litigation, corporate minute books, cap table and equity agreements.
Intellectual Property
For technology or IP-driven businesses, we verify that the target actually owns what it claims to own: patents, trademarks, copyrights, and trade secrets. We check for prior assignments, work-for-hire issues with founders and contractors who may not have signed IP assignment agreements, and any third-party IP that is embedded in the target's products.
IP ownership chain, inventor assignments, open-source license compliance, trademark registrations and clearance, domain registrations, software licenses.
Financial
Financial due diligence, typically performed by the buyer's accountants, analyzes the quality of the target's earnings, the reliability of its financial statements, working capital trends, and the accuracy of management's projections. We coordinate legal and financial diligence findings and ensure that material financial issues are properly addressed in the purchase agreement's representations.
Three years of financial statements, audit reports (if any), accounts receivable aging, deferred revenue, related-party transactions, off-balance-sheet obligations.
Tax
Tax diligence surfaces historical exposure: unpaid payroll taxes, sales tax nexus in states where the target has not been collecting, transfer pricing issues for multi-entity structures, and Section 280G golden parachute exposure triggered by the transaction. In asset deals, we work with tax counsel to optimize the purchase price allocation across asset classes.
Federal and state tax returns (3-5 years), payroll tax filings, sales tax compliance, open audit matters, NOL carryforwards, and deferred tax liabilities.
HR & Employment
We review all employment and contractor agreements, equity plans, benefit plans, and ERISA obligations. Misclassification of workers as independent contractors creates significant liability: unpaid payroll taxes, benefits, and potential class action exposure. We also assess key-person retention risk and identify which employees are critical to transition.
Employee headcount and classification, equity plans and vesting schedules, 401(k) and benefit plan compliance, WARN Act applicability, HR policies and handbooks.
Regulatory & Compliance
Industry-specific regulatory review varies significantly: healthcare targets require HIPAA compliance review; financial services targets require securities and banking license review; cannabis, alcohol, and other licensed industries require license transferability analysis. We identify licenses and permits that are personal to the target entity and cannot be assigned in an asset deal.
Business licenses, professional licenses, environmental permits, FDA/DEA registrations (if applicable), data privacy compliance (CCPA, GDPR), government contracts.
Common Questions
FAQ
What is a letter of intent and is it binding?
A letter of intent (LOI) outlines the proposed principal terms of a deal before the parties invest heavily in due diligence and definitive documentation. Most LOIs are intentionally non-binding on the substantive deal terms (price, structure, representations) while binding on exclusivity (preventing the seller from shopping the deal to other buyers during the diligence period) and confidentiality. The binding nature of specific provisions depends on how the LOI is drafted, which is why we review every LOI before our clients sign.
Should I structure my deal as an asset purchase or stock purchase?
It depends, and the answer often differs for buyers and sellers. Buyers generally prefer asset purchases: they get a stepped-up basis in assets (producing future tax benefits), they avoid inheriting unknown or contingent liabilities, and they select only the assets they want. Sellers generally prefer stock purchases: gains are taxed at capital gains rates rather than ordinary income rates, and the transaction is operationally simpler. The deal structure is negotiable, and the relative leverage of the parties usually determines the outcome. We model both structures for clients before LOI negotiations begin.
How long does an M&A transaction take?
A straightforward small-to-mid-market transaction (below $10M in enterprise value, no regulatory approvals required) typically runs 60-120 days from signed LOI to closing. Larger or more complex deals, deals requiring HSR antitrust filings, deals with significant diligence issues, or deals requiring financing can take 4-6 months or longer. The most common causes of delay: diligence taking longer than expected, purchase agreement negotiations, and third-party consent logistics.
What is rep and warranty insurance?
Representations and warranty (R&W) insurance is a policy that covers losses arising from breaches of the seller's representations and warranties in the purchase agreement. Instead of the buyer pursuing the seller for post-closing indemnification claims, the buyer makes a claim against the insurer. R&W insurance has become standard in mid-market and larger M&A transactions. It allows sellers to receive cleaner consideration at closing and reduces the friction in indemnification negotiations. Premiums typically run 2-4% of the policy limit.
What is an earnout and when is it used?
An earnout is a contingent purchase price mechanism where a portion of the purchase price is paid after closing based on the acquired business achieving specified financial or operational milestones. Earnouts bridge valuation gaps when the buyer and seller disagree on the target's future performance: the seller gets paid more if the business performs as they project, and the buyer pays less if it does not. Earnouts are frequently contentious post-closing because the buyer controls the business during the earnout period. Careful drafting of the earnout metric, calculation methodology, and anti-sandbagging protections is essential.
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