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California Business, Insurance And Environmental Law Blog

Don't forget an umbrella policy for stormy situations

If you run a business, you know that you should have business insurance. One kind of insurance you may not have considered is the addition of umbrella insurance.

Business owners may believe that all their expenses would be covered in the event that they are held liable for injuries or problems at their place of business. However, this isn't always possible due to limits on insurance and other factors. The good thing to know is that umbrella insurance can add an extra safety net, so you're more likely to survive a lawsuit or insurance claim without extraneous expenses.

What to consider during a merger

California companies that are looking to acquire or merge with other businesses need to take the due diligence process seriously. Ideally, they will spend a lot of time listening and learning as much as possible about an acquisition target. Taking this step makes it possible to learn more about whether a business is worth taking over or if there is too much overlap between the two entities.

It is also a good idea to be upfront about any issues that could scuttle a potential deal. This prevents a situation where a transaction is almost completed but can't be closed because of an unforeseen objection. Companies that are approached about a merger or acquisition should assume that a competitor isn't serious about a deal at first. An exception may be made if a CEO or other decision maker has initiated contact.

Startups grow through funding rounds

Many entrepreneurs in California attempt to use investment capital in an effort to scale up their companies. Typically, a startup company will go through multiple funding rounds to meet its capital needs. In exchange for funding, investors will receive an equity stake in the business. It can take anywhere from three to nine months to complete a funding round, and later rounds generally take longer to complete because of increased due diligence.

During the funding process, business owners will need to organize company data and research potential investors. From there, an entrepreneur will create a pitch deck and execute that pitch at investor meetings. If there is interest in doing a deal, a preliminary offer will be made pending the due diligence process. When an investor is satisfied with what he or she has seen, money will be transferred to the company through a wire transfer.

Considerations for attracting startup investors

Which new California businesses qualify as startups is a common question in entrepreneurial circles. Typically, the term "startup company" refers to a new organization that has little or no history and little or no sales. This lack of history makes a comparison with other businesses or time periods difficult or unduly speculative. Because they lack a track record of success, startups are often seen as high-risk. Investors are often more interested in a startup's core idea or technology than they are in immediate revenues or other numbers.

People who invest in startups will typically also take into account the business plan and the expertise of the business owners. There is debate as to when a startup ceases to be a startup, with one opinion being that it is not a startup company anymore once its revenues are sufficient to cover operational costs day to day. Another school of thought says it's a matter of time, with two years of operational history removing the startup moniker.

An overview of business mergers

Companies doing business in California or any other state may feel that a merger is in their best interests. In a vertical merger, a supplier will merge with one of the businesses that it supplies products to. A horizontal merger involves competing companies in the same field coming together to create a larger and potentially stronger entity. In some cases, a horizontal merger is hostile in nature, which means that one organization forcefully takes over the other.

Market extension mergers are similar to a horizontal merger. This occurs when a company that does business in one part of the country or world merges with a company that does business elsewhere. By combining forces, the new entity has access to a larger market and may be more efficient overall. In some cases, two businesses may come together that were not in direct competition with each other.

Choosing incubators or accelerators for startups

California entrepreneurs may find that establishing their startup can be difficult. However, there are planning options, such as incubators and accelerators, that they can pursue in order to be able to properly launch their startup. It is important that entrepreneurs know exactly what these programs are and which one is appropriate for their situation.

Incubators and accelerators are alike in that they help startups to develop and be appealing to investors. The main difference lies in which stage of their development they provide assistance.

Rent-A-Center merger on the rocks after FTC request

Two companies are publicly sparring over a merger that could affect rent-to-own consumers in California and across the country. Rent-A-Center, which specializes in rent-to-own sales of household goods and products like electronics and furniture, said that it terminated its agreement to merge with Vintage Capital Management, a private equity firm that also owns one of its major competitors in the market. Earlier, the merger had been approved by a decisive vote of Rent-A-Center shareholders in September 2018.

In response, the equity firm said that Rent-A-Center's actions were invalid, breaching the contract between the companies. Vintage said that the merger agreement remains valid and that it intends to take action to make sure it proceeds. These statements came after the Federal Trade Commission presented both companies with a second request for more information to investigate the antitrust impact of the acquisition. However, Rent-A-Center said that it would not extend the end date of the agreement to accommodate the FTC request, saying that the company had the right to end the agreement. It also asked for $126.5 million from Vintage as a penalty.

Waitr acquires Bite Squad food delivery company

While some people in California might not be familiar with the food delivery services Waitr or Bite Squad, that could change in the years ahead since Waitr is purchasing Bite Squad. The deal means expansion to 500 cities in more than 20 states. Bite Squad will continue using the same system for now, so existing customers are unlikely to see any immediate changes.

In two years, Bite Squad has absorbed more than 40 companies. While neither Waitr nor Bite Squad has as much money as some other companies, both say their business models set them apart. Instead of using contract drivers, both make their delivery drivers employees. Bite Squad also offers its customers the opportunity to order liquor.

Business mergers: Questions to ask your prospective intermediary

The large amounts of money involved in a business merger mean that emotions will be running high, a lot will be on the table and there's the risk of making a huge mistake that haunts you for many years to come. For these and many other reasons, hiring an intermediary to help navigate the various moving parts involved with a large business merger is a wise move.

Whoever you choose as a prospective intermediary, you will want to interview this person to ensure he or she is the right one for the job. Here are the first question you should ask regarding the intermediary's experience, education and qualifications:

Plus seeks to dominate cannabis edibles market with acquisition

Since the legalization of recreational cannabis in California, edible products infused with cannabis have become more popular with consumers. Retail figures from the third quarter of 2018 ranked Plus Products Inc. as the producer of the best-selling edibles brand in the state. To build upon this success, Plus acquired GOOD CO-OP, another producer of baked cannabis foods.

GOOD had already established its products with consumers by making brownies and pumpkin spice goldies without additives or preservatives. The management at Plus views the acquisition of GOOD as a means of expanding farther into the cannabis baked goods market. Plus was already operating a 12,000-square-foot manufacturing facility and now has brought another 4,800 square feet of manufacturing capacity under its umbrella by buying GOOD.

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