Buying an Existing U.S. Company or a Part Ownership Thereof
By Aaron N. Wise, Attorney at Law © 2009
“Bullet points” are really not appropriate for this complicated and multi-faceted subject. There are many types and varieties of acquisitions and acquisition structures, and for each, there are many facets and key points. Mentioning all or even many of them is impossible due to space constraints. Here are a few short and rather general observations about acquiring a U.S. company or a part ownership therein.
• “Due diligence” is a must. For any acquisition of a U.S. company, a considerable amount of preliminary homework will be required. All aspects of the acquisition target company will have to be carefully examined and evaluated, from top to bottom. This process is called “due diligence”. A due diligence review by your U.S. lawyers (a thorough review of the legal, tax and other aspects of the target company) which data will be supplied mainly, but not exclusively, by the target/its owners, is standard practice in the USA. Other types of experts will often be involved in the due diligence process, such as an accounting firm, an environmental study firm, or a construction engineer. Consummating an acquisition without proper “due diligence” is like “buying a pig in a poke”. If your experts’ due diligence reports reflect a company that is not to your liking, you might decide not to consummate the deal, or might bargain for better terms.
• Stock Purchase; Assets Purchase. Most acquisitions of privately owned companies will be by way of either a stock purchase or an assets purchase. Potentially, each has its particular upside and downside features for the buyer and the seller. You should be aware of them.
• Drafting Initiative. Through your U.S. counsel, you should do your best to prepare the first draft of the acquisition agreement (and any non-binding summary of terms or letter of intent that might precede it), and thereafter, to maintain the “drafting initiative”.
• Do Your Own Homework and Be Patient. Do not underestimate how long it will take to finalize an acquisition. Although the parties may have reached agreement in principle, it takes time to complete the “due diligence”, obtain the financing (where applicable), negotiate, prepare and revise the necessary contractual and other documents and get them signed, and do all of the other legal and non-legal tasks. You should not become exasperated because the acquisition agreement and other contractual documents are long and complicated. To get the best possible results, you should work very closely with your U.S. counsel, review and comment on contract drafts and other documents, and generally, be part of a team.
• The “Antitrust” Law Aspects. Where the acquisition is fairly sizeable, the U.S. antitrust aspects should be evaluated before proceeding too far with the negotiations. Also, for fairly sizeable acquisitions, a pre-notification filing with a U.S. government antitrust watchdog agency will be required.
• The Tax Aspects. Before proceeding too far with negotiations, the buyer’s experts should study the tax aspects of the proposed target company. They may affect the manner and structure of the deal the buyer wishes to negotiate.
More extensive information on acquisitions of a U.S. business or a part thereof can be found in “A Foreign Person’s Guide to U.S. Law – Business Practice – Taxation”, or in “The Acquisition of an Existing American Company or an Ownership Interest Therein: A Short Practical Guide for the Foreign Business Person and Foreign Lawyer” both by this author and available from him at no cost