Selling or Acquiring a Company, Subsidiary / Business or Product Line (Mergers, Acquisitions & Divestitures)
by Sarah Guasta


There are many considerations with regards to the sale or acquisition of a company or business unit of a company including a specific product or product family.


The following provides an overview of those considerations applicable to (1) compliance with U.S. export laws and regulations and (2) ensuring that with a sale or an acquisition of a business which may only involve a specific product or family of products, that appropriate due diligence is carried out on any U.S. export/import compliance issues of the company or business.


UU.S. Compliance Requirements Prior and On Sale/Acquisition


ITAR Products or Trade Involved


If the sale or acquisition involves the acquisition of an ITAR registered entity or business (i.e. product line) of an entity, the burden is on both parties to provide a 5 day post acquisition/merger notification to the U.S. Department of State - Directorate of Defense Trade Controls Compliance (DTCC) of the sale.


Sale to Foreign Company


If the sale or acquisition involves the acquisition of an ITAR registered entity or business (i.e. product line) of an entity by a foreign company, the burden is on both parties to provide advance notification (60 days prior to sale) to the U.S. Department of State - Directorate of Defense Trade Controls Compliance (DTCC) of this anticipated sale.


Barring any issue or objection by DTCC, DOD, or others within the U.S. Government, the sale may proceed.


With the purchase, the buyer agrees to obtain a new DDTC registration for the acquiring company, if the company is not already registered, along with transfer from the seller to the buyer of any existing and required ITAR licensing authority for products and activities of the business being purchased.


Advance notification time requirements are different when involving sale of an ITAR business, which may only be a portion of a business - i.e product line, to a foreign company.


Committee of Foreign Investment In the United States (CFIUS)


This U.S. Government interagency committee is authorized to investigate and block any transaction or investment by a foreign company that could present possible national security concerns. It is important, therefore, that any U.S. company selling a business (regardless of products or business activities) to a foreign company contemplating the purchase of a U.S. business be aware of and ensure that this sale/purchase considers and obtains, where deemed necessary, clearance from CFIUS.


Due Diligence Prior to Purchase


Besides responding to U.S. Government reporting and approval requirements for the sale or purchase of U.S. company or business, it is important that a company identify and evaluate the U.S. export/import compliance status of the business to be sold and purchased.


In some cases, findings may eliminate a purchaser's interest in acquiring the company or may be a consideration in the price being paid for the business.  Compliance issues identified can be qualified and made part of the sale/purchase agreement with assignment of the liability for financial responsibility for any open compliance cases.


In addition to the qualification and consideration of assets, liabilities, sales orders, etc., it is important that any potential sale or purchase of a company or business address issues that may be relevant to international trade involvement and associated U.S. Government required notification and/or approval.


This publication is for informational purposes only and is not offered as legal advice as to any particular matter. No reader should act on the basis of this publication without seeking appropriate professional advice as to the particular facts and applicable law involved.

 

 
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