Acquisitions and Divestitures

The basic definition of a divestiture is selling off business interests and assets, and closing down the enterprise upon conclusion of the process. However, there’s a lot more you need to understand if you’re considering this type of transaction or its counterpart – an acquisition.

TheFlorida Business Corporation Actcovers the scenario generally, but there are complicated financial, legal, and organizational considerations that you won’t find in the statute.

These issues may affect your interests before, during, and after the transaction is complete, so it’s smart to retain Florida mergers and acquisitions attorney from the start. You can become familiar with some of the basic principles about acquisitions and divestitures by reviewing some important information.

Key Definitions 

To expand upon the basic terminology, a divestiture is a complete disposition of a business entity’s presence, assets, liabilities, debts, and other interests. The transaction may be through selling the business, but divestiture can also occur because of an exchange of real estate, company property, and stock.

If the organization qualifies under the US Bankruptcy Code, the court may also approve of a divestment through liquidation or restructuring proceedings.

Depending on the background, it’s possible to complete either a full or partial disposition. For instance, a company may consider divestiture where:

  • Trademarks, copyright, or patents have expired;
  • It’s selling intellectual property to another organization;
  • Separate divisions of the company are acquired through different mergers and/or acquisitions;
  • A court orders divestiture to cover a judgment or other legal liabilities; and,
  • Under many other circumstances.

Reasons a Divestiture May Work for Your Needs

Business owners have multiple grounds for wanting to divest their interests in a piece of property, a component of the organization, or the entire enterprise. You may want to consider divestment as an option if you’re seeking to:

  • Eliminate redundancies in your business, where a unit isn’t turning a reasonable profit;
  • Increase cash flow for the company without incurring loans or bringing in new investors;
  • Make your business look better on paper, especially where you’re looking to sell and increase the fair market value; or,
  • Avoid adverse consequences of bankruptcy or terminating the company.

In addition, divestiture may not be an option when it’s the subject of a court order or a finding by an administrative agency.

“Instead of starting a new business from scratch, sometimes the best decision is to purchase an existing business. With the right structure, a buyer can purchase the seller’s whole business or just the parts that are attractive to the buyer.”

Trevor Brewer

Relationship Between Acquisitions and Divestitures 

For every business that’s looking to optimize operations through divestment, there’s another company actively seeking out opportunities to advance their interests. For this reason, divestitures are often closely associated with acquisitions by another entity. However, based upon the reasons above, extra caution is essential if you’re on the acquiring side.

Regardless of whether your interests are in acquisition or divestiture, a thorough business valuation is essential. There are multiple approaches, including those that take into account fair market value, historical value, income, asset value, and initial purchase prices. You should trust legal counsel and financial experts to advise you on the right structure, but options include:

  • A partial sale of units, a subsidiary, or other interests;
  • Spinning off and dividing up various business units into a separate company;
  • Splitting the company up into multiple, separate entities – which divests the parent company and operations cease; or,
  • An approach that involves selling a subsidiary or business division and offering it up through an IPO.

Speak to an Orlando, FL Mergers and Acquisitions Attorney for Free

If you’d like more information about acquisitions and divestitures in Florida, please contact Brewer Long Business Law to set up a no-cost consultation. You can reach our Maitland, FL office by calling 407.660.2964 orvisiting our firm website. Our experienced lawyers handle complex business transactions for clients throughout Central Florida, including Orlando, Deltona, Apopka, and Lake Buena Vista. 

Author Photo

Trevor Brewer

Primarily working with business owners and their families, Trevor advises clients on business structuring and sale transactions, regulatory compliance, third-party contracts, liability protection and general matters facing small business owners. His focus extends beyond legal advice and includes business strategy and wealth preservation. Trevor also works with families regarding their estate planning needs, including probate, trust administration, and wills.

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