Structure in acquiring a target made up of 2 entities

July 26, 2024

by a searcher from New York University - Leonard N. Stern School of Business in Grand Rapids, MI, USA

The target is actually two targets from the same seller. The financials are messy, bleeding into each other as the seller moved money from one entity to the other over the last few years thematically. It is truly one business, so I'm merging them into one entity.

Regarding the corp structure, I have one entity acquiring them both in an asset deal. A lawyer recommended two LLCs to acquire one entity each, rolled up under the corporation to insulate the corporation as these businesses operate.

Question 1:
In this situation, is it superfluous to have each entity acquired by an LLC? The businesses will cease to operate individually post close.

Question 2:
Is it helpful to have DBAs in place for the two targets post-close?

Reply by a professional
from Dartmouth College in Los Angeles, CA, USA

If you are able to leave the liabilities of each seller entity behind, as is often the case in asset deals, and you plan to operate them as a single business going forward, then 2 LLC's may not be necessary. Any parent-subsidiary structure at all may not be necessary for a single business unless there is a tax structuring benefit (QSBS etc) or if you have investors that want to invest into a holdco and not the operating company. As long as you acquire the rights to all IP associated with both names, including any existing dba's (which you would likely terminate and reapply under the newco's name), you should be ok. But your lawyer may have other reasons for their proposed structure so I don't want to dismiss it completely.

Reply by a professional
from University of Southern California in North Palm Beach, FL, USA

One of my clients just completed a deal like that. Confer with highly qualified legal and financial counsel to handle the differentiation and dealmaking. Do not rely upon anecdotal information.

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