Archive for Acquisition

I Think the Economy – and Business Confidence – are Improving

Spray-painted dollar sign

I think the economy – and business confidence – are improving. The reason: During the past week, two of my clients received unsolicited acquisition overtures from well-known Bay Area companies.

I’ll readily admit that this? does not represent a statistically valid sampling of local businesses. Nevertheless, I find this development meaningful because the last time a client was acquired was years ago.

At the moment, I’m coaching these clients on negotiation tactics. Then, because I started working with each company after it was formed, we’ll make sure that corporate records are complete and up-to-date. (See What Must We Do if We?re Going to Be Acquired?)

I’m sad that I will lost valued clients, but I’m pleased that I will have a role in their successful exits – and that these transactions appear to be a sign that the business climate is improving.

Photo credit: Paula Navarro via stock.xchng

Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

http://danashultz.com/blog/2010/12/20/what-must-we-do-if-were-going-to-be-acquired/

Accelerated Vesting may Mean Little if Your Employer is Acquired

Quora logo

This post is adapted from a question that I answered on Quora. Q. How can an acquirer make an employee with single-trigger vesting commit to a “lock-up” period to receive all his shares? Say you’re an engineer at a just-acquired startup with 0.5% of the old company, and your shares fully vested upon acquisition. The acquirer’s terms were that current employees get 50% of their payout up front, and 50% if they stay on board for 5 years. How is that possible, legally?

A. It is difficult to provide a definitive answer without looking at the relevant documents. However, I suspect that this situation is possible because 50/50 pertains to shares in the acquiring company rather than the acquired company.

In my experience, acquired companies will put some effort into converting employee equity interests directly into comparable interests in the acquiring company, but there is no guarantee this will happen.

So you may (I can’t be sure, not having reviewed the documents) have a choice: Keep your 0.5% fully-vested interest in the acquired company (which is likely to have little, if any, market value in the foreseeable future), or accept the 50/50 conversion to an equity interest in the acquiring company.

Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

What Must We Do if We’re Going to Be Acquired?

photo of document binders standing next to one another

A successful exit by acquisition is one of the great thrills of entrepreneurship. That exit does not come easily, however. This post discusses, by category, the most important documents and information that you will need to provide during the acquirer’s due diligence process.

Corporate Documentation

  • Articles of incorporation and bylaws, as amended
  • Minutes of board and shareholder meetings and actions
  • Share transfer ledger, including name and address of each shareholder
  • Agreements pertaining to shares and shareholders’ rights (buy-sell, voting rights, etc.)
  • List of holders of option or warrants and all applicable agreements

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If You Think It Smells Bad Now, Wait until You Dig into It

More than 20 years ago, I was General Counsel of a small software company. The CEO – a successful serial entrepreneur – was always looking for opportunities to acquire, or establish strategic relationships with, other companies. The CEO was creative in identifying opportunities, yet highly attuned to potential problems. He told me, “If you think it smells bad now, wait until you dig into it. I was recently reminded of his warning.

A client (“Client”) had signed a letter of intent to acquire a much smaller company (“Target”) and asked that I represent Client in the transaction. I sent a Due Diligence Request List to Target, and with its reply I had my first clues that Target might have some problems. Target’s initial responses were superficial and incomplete. I did not know whether the company was being evasive or was merely naive. Either way, it appeared that Target lacked a lawyer’s guidance.

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