In an article published in the February issue of Today’s Restaurant News, Richard Bruner discusses how to avoid unexpected successor liability in restaurant acquisitions. While there are great opportunities for restaurants to acquire existing restaurants, buyers should be sure to take steps to prevent assuming the sellers’ liabilities. When purchasing any company, the structure of the transaction establishes whether the buyer will take on the liabilities of the business being acquired.
The two most common ways to structure an acquisition of a small business, including a restaurants, are stock acquisitions and asset acquisitions. In a stock acquisition, the buyer assumes all the outstanding stock of the selling company directly from its shareholders – meaning the buyer assumes all the assets and liabilities of the company being acquired. However, in an asset acquisition, the buyer determines the specific assets and liabilities it agrees to acquire in the purchase agreement. Most acquisitions of small businesses, such as restaurants, are structured as an asset purchase to prevent the automatic attainment of the seller’s liabilities.
“Although there is great value in restaurant investment that is driving a thriving mergers and acquisition market in the industry, buyers are wise to focus on just acquiring the business rather then the liabilities that may come along with it,” Bruner explained. “Restaurant purchases, therefore, should take steps to mitigate their risk by structuring the transaction as an asset acquisition, conducting thorough due diligence, paying careful attention to agreement details and using set asides to address any undisclosed liabilities down the road.
