So Want to Be Acquired by Google?

This article from Fenwick & West is written for the directors and executives of emerging technology companies (referred to as TechCos) who are considering selling their company to a larger, more sophisticated company (referred to as LargeCo).

TechCos are privately held companies that exploit something new (technology, products or niche markets), experience rapid change (growth, market, profitability or cash flow) and typically are short on infrastructure and capital resources. These TechCo characteristics create special issues when TechCo decides to be acquired by LargeCo.

The article summarizes TechCo’s key issues when it prepares for and negotiates a successful sale of its business to LargeCo. Before they begin acquisition negotiations, the article can help TechCo’s executives frame the issues of importance to them. During negotiations, it can be a useful resource to TechCo’s executives for evaluating and responding to LargeCo’s proposals.

The article is divided into five sections. The “Introduction” explains why companies merge or are acquired and what factors lead to successful and unsuccessful acquisitions. “Deciding To Be Acquired” explains why companies may decide it is preferable to be acquired instead of going public, and when TechCo should consider being acquired. “Key Deal Issues” outlines the key deal issues from both LargeCo’s and TechCo’s perspectives.

“Troubled Company M&A Issues” highlights employee retention issues when TechCo is valued at less than its liquidation preference as well as special issues when TechCo is near insolvency. “Implementing The Deal” outlines the mechanics necessary to close a typical acquisition. The article concludes with two appendices. Appendix A is a sample Letter of Intent for a merger, illustrating typical provisions requested by LargeCo. Appendix B is a sample Time and Responsibility Schedule for a merger being accomplished pursuant to a Form S-4 Registration Statement."

(the text of this post is based on a booklet form of the article available on the Fenwick and West website)