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DEVELOPING YOUR COMPUTER BUSINESS - ACQUISITIONS & MERGERS

PURPOSE

Developing a successful technology business begins with a great invention and innovation; however, growing that business is not dependent upon internal developments alone.  Frequently, to keep a business growing at a pace that allows it to remain competitive it is necessary to acquire other technology businesses and integrate them into your existing business.  These synergies are often only possible through a merger or acquisition, since the necessary technology and intellectual property is owned by a competitor and can only be acquired through attaining the entire business (as opposed to a mere licensing agreement, whose limitations may be quite problematic from a long-term perspective).

CERTAIN RISKS *

Cost & Obligations.

     Acquiring another business is a costly and onerous undertaking.  Although there might be a critical technological component or procedure that you are looking to acquire, you will also be acquiring a variety of other costs and obligations, from assets and employees, to existing contracts and legal liability.  This demands serious due diligence, followed by the negotiation of an agreement that limits your legal exposure.

Financials.

     In developing your merger or acquisition strategy, you need to understand financial statement issues (what is the potential exposure, understanding what you are purchasing) and the control environment (understand weaknesses, how they may impact future operations, what are the risks).  Thereafter, you will need to look at the financial and operational integration that must be undertaken, including business processes, information systems, marketing, human resources, etc.

Limits of Licensing.

     Technology licenses are only as good as the contract that is in place.  If your business becomes dependent upon a particular technology license, and it is up for renewal, the new contract can be particularly expensive if the licensor knows that you need their technology to continue your own business.

 

JOINT VENTURES, SHAREHOLDERS & PARTNERS

PURPOSE

Technology-driven enterprises need to be structured to capitalize upon available business opportunities and attract the best leadership and external partners.  This is a very particular process, which requires extreme focus on both short-term and long-term goals and how they are to be realized.  Whether the enterprise is structured as a corporation with a range of shareholders, a partnership, a joint venture or some alternate business model, this is only the beginning of the process. 

CERTAIN RISKS *

Inappropriate Structure.

     Many businesses are structured to appease the unrealistic expectations of the participations; in particular, the excessive demands of minority participants.  New businesses have a tendency of shedding too much control too early in their developmental process.  This invariably creates restrictions in the near future that hampers growth, as the business is incapable of taking decisive actions, including obtaining ever-important capitalization at subsequent stages of its development.

Financing.

     Financing is the greatest challenge facing technology-driven enterprises that need to conquer the world in short order.  Unfortunately, due to inadequate business structuring and a lack of knowledgeable professional advice, many technology-driven businesses repulse prospective investors, making financing overly difficult to secure.

Exit Mechanism.

     The most crucial elements in any business relationship, and the most underappreciated, are the exit mechanisms that permit an orderly and acceptable conclusion to the business relationship.  Businesses are fluid and demand a constant infusion of new ideas and investment, whish is only possible with well-conceived entry and exit strategies.

Death & Disability.

     The loss of a key member to your business team can have a devastating impact to the future operation of your technology-driven enterprise.  The impact of that individualĺs death or disability is that much more severe when arrangements are not in place to fill the void that is created in the business and the cost of buying out the individualĺs interest from the individualĺs estate.

* The preceding list(s) of risks is not meant to be exhaustive, to the contrary, it is meant to illustrate a few of the many dangers that can arise when a business fails to retain the legal services of an appropriate lawyer.

Contact computer lawyer Christopher R. Neufeld of Neufeld Legal Professional Corporation at chris@computerlawyer.ca or 403-400-4092 for businesses situated in Calgary and Alberta or 416-887-9702 / 905-616-8864 for those businesses situated in the Toronto Business Triangle (Toronto-Hamilton-London, Ontario).

Christopher R. Neufeld, an attorney with Neufeld Legal Professional Corporation, is admitted to practice in both New York (U.S.A.) and Ontario and Alberta (Canada), and represents computer / information technology businesses in the United States and Canada, and foreign technology companies engaged in commercial operations in North America.  The law firm has offices in Calgary, Alberta; Toronto, Ontario and Burlington, Ontario. COPYRIGHT 2008/12.

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