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What should I consider before a full-asset merger?

On Behalf of | Mar 30, 2023 | Corporate Litigation

When another business has the equipment or inventory to help produce your products, a full asset merger might seem like a reasonable option. By acquiring the other business, your company could reduce some of its production costs.

A full-asset merger occurs when one business buys the assets of another company. Before going through with a merger, you should know if your purchase will be worth it.

Check for liabilities

Buying the assets of a company also means taking on its liabilities. For this reason, you should perform due diligence on the other business to learn if you will become responsible for more debt than you wish to handle. Also, the other company might have legal issues that could ensnare you once the merger is complete.

Consider options for stockholders

The company you want to buy might issue ownership stock. Once you purchase the company assets, you will have to think about how to reimburse the stockholders for their stock.

One option is to offer stock in your company in exchange for the shares in the acquired business. However, you should value the stock of the acquired business carefully, as the shares of the other company might be worth less than shares in your business.

Handling a bankrupt company

If the other company files for bankruptcy, you might still end up with the business. A bankruptcy judge could allow you to buy the assets while discharging the debts of the other business. The other business will likely close down entirely but you will own its equipment and inventory.

Navigating possible legalities is important if you want a full-asset merger to be of benefit to your enterprise.