Certified Parts - Contract Analysis

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by a searcher from Princeton University
in Livingston, NJ 07039, USA

1yr ago

Certified Parts - Contract Analysis

Has anyone done an asset sale for a company that makes certified parts for a larger company? I am wondering if an asset sale would create an opportunity for competitors to jump in as the parts are no longer made by "company XYZ" and would therefore require an engineering review to prove that they are the engineering equivalent. A stock sale is an option but those have other issues.

How did you determine if an asset sale is an issue during due diligence? Do change of control provisions exist in POs or just blanket purchase agreements?

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reply by a professional 1yr ago
from The Johns Hopkins University in Basking Ridge, NJ 07920, USA

Eric -- All fair questions, but a bit too much for a response here. I have been involved in a number of transactions involving specialty parts manufacturers/fabricators. As you intimate, sometimes stocks sales are entered into (notwithstanding that the general "rule" that asset sales are more buyer friendly), because of change in control and other contract-related concerns. While specific concerns require review of the specific agreements, I often advise clients to escalate contract/legal due diligence up the priority list in those situations to test whether the initial sale choice (asset v stock) is appropriate. Deals sometimes shift mid-stream due to unidentified issues, but this increases most advisor costs so its best to try and identify early on (though that is not always possible).

Change in control provisions can be included in a variety of types of agreements, but even if not included, you still have to consider how to address with customers even if not legally required.

Happy to discuss in more detail if you like. Send me a DM if so, but best of luck in your search!