Legal Blog

M & A Nuggets: Allure Of Purchaser’s Stock

stocksIf you are selling your business, you may receive a proposal from the purchaser to pay you in part with cash and in part with shares of stock in the purchaser.  The allure of owning an interest in the purchaser, and therefore indirectly continuing to own an interest in your company, is enticing, but should be vetted by you carefully.  First, you should determine whether your ownership interest in the purchaser will be liquid.  If the purchaser is a public company, then there will be a public market for the interest.  If the purchaser is not publically traded, then there will be no public market and there will likely be restrictions on your ability to transfer the ownership.  Even in the case in which you receive publically traded stock, there would normally be a holding period during which you could not liquidate the stock. Second, since the purchaser is substituting part of the purchase part for stock, instead of cash, you should understand the historical, present and projected future value of the stock.  Again, with publically traded stock, historical and present value is easy to determine.  Not so easy with privately held stock.  There are other facts to consider, but the lesson here is to know what you are getting so that you can weigh the downside of a drop in the value of the stock against the upside of an increase in the value of the stock.

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Glenn D. Solomon Esq., is a principal at the law firm of Offit Kurman and has provided counsel to businesses and business owners for more than twenty-five years, with extensive experience in the purchase and sale of businessesstructuring ownership agreements, and advising companies in financial distress






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