Managing Licensing Through Mergers & Acquisitions

A merger occurs when two separate entities combine as a new, joint organization. An acquisition refers to the takeover of one entity by another. Mergers and acquisitions may be completed to expand a company's reach or gain market share to create increased shareholder value. Business owners and operators need to be aware of licensing requirements when significant shifts in business occur. Keep reading to learn about M&A licensing risk management.

Mergers & Acquisitions: An Overview

Mergers

A merger involves at least two companies consolidating into a new entity with a new ownership and management structure. Mergers require no cash to complete, but dilute each company's individual power. Typically, mergers are considered as a strategy to reduce operational costs, expand into new markets, and boost revenue and profits. Mergers are usually voluntary and involve companies that are roughly the same size and scope.

Acquisitions

In an acquisition, a new company does not emerge. Instead, one of the combined companies is often consumed and ceases to exist, with its assets becoming part of the other company. An acquisition takes place when one company takes over all of the operational management decisions of another company. Acquisitions require large amounts of cash, but the buyer's power is absolute. Companies might look to strengthen their market share, reduce costs, and expand into new product lines through the acquisition process. They may also look to obtain the technologies of the target company, which can help save years of capital investment costs and research and development.

Since mergers are relatively uncommon and takeovers are often viewed negatively, the two terms have become increasingly blended and used in conjunction with each other. Contemporary corporate restructurings are usually referred to as merger and acquisition transactions rather than simply a merger or acquisition. The new definition of M&A deals is slowly eroding the practical differences between the two terms.

M&A and Licensing Risk Management

Whether or not you are considering a merger or acquisition in a regulated industry, you must ensure the resulting company is appropriately licensed to carry on its activities. If you operate a company that is not correctly licensed, you may end up on the hook for fines and penalties.

Unfortunately, it is relatively easy for a company to fall out of compliance. The requirements, renewal periods, and due dates for licenses vary significantly from state to state, so it is not uncommon for a company to mistakenly allow a license to lapse. Each state, county, and municipality has different rules and regulations for license requirements, and it can often be quite challenging to know what rules apply to a particular business activity. Mergers and acquisitions can further complicate deadline clarity.

If you are merging or acquiring a company that is up to date with licensing requirements, but your business was not previously licensed in the required jurisdictions, you will want to ensure you either transfer the existing licenses or file for a new license. The process will depend on the state in which your business is located.

Note that not all licenses can be easily transferred in the case of an acquisition. Sometimes, several weeks of notice may be required for a transfer to be accepted by a licensing authority. In other instances, there are time limits — such as 30 or 60 days after completing the merger — in which the authority must be notified. If you know in advance what must be done, you can make the whole process smoother. This is especially important when the company is undergoing a lot of changes.

If a transfer is not allowed, the process for becoming licensed in a new jurisdiction can often take several weeks or even months. Requirements for bonding, fingerprints, exams, or quarterly board approval meetings can cause significant delays. If you want to begin operating in a new location directly following your merger, start researching the process for transferring or acquiring licenses well in advance.

Maintain Your Licenses at All Stages of Business

Unexpected penalties and delays can inhibit your ability to operate your business after a merger or acquisition. With a bit of research and guidance, complying with state or local requirements can be managed without concern.

At Harbor Compliance, our business compliance solutions include managed licensing, annual reporting, and registered agent services to help ensure accurate and on-time filing of key requirements. This way, your business will continue to be compliant with state and local requirements, and you will have the time you need to continue working and expanding your clientele. Contact our compliance specialists today to learn more.