There are several reasons why licensing is a particularly sticky wicket for businesses. The challenges can be even more complex in the midst of a business deal:
So. Many. Licenses.
Depending on the type of business you have, licensing can be as simple as applying for a license to operate in a state, or as complex as licensing the types of products you sell (e.g., animals, alcohol, ammunition) or the elements of your physical location (e.g., freezers or fire safety systems).
Even if each business has the proper licenses going into a merger or acquisition, the change in business structure or ownership often means obtaining new licenses or updating existing ones with the appropriate business name, new FEIN, primary address, new locations, and so on.
Layers of authority
Getting federal and state licenses is just the beginning.Counties, cities, and special zones all have their own licensing requirements. And because each jurisdiction sets its own rules, the requirements vary from location to location. Licenses typically aren’t transferable (to other owners or locations) and even the types of licenses required can change from one place to another.
Maintaining valid licenses
Some licenses expire, others don’t. When business information changes, licenses will need to be updated, which means reapplying with each individual jurisdiction where you hold a license. It’s easy to see how joining or absorbing another business can make manually maintaining a license portfolio rather daunting.
Skeletons in the filing cabinet
Auditors are busy, and businesses can sometimes fly under the regulatory radar, getting some, but not all of the necessary licenses. But nothing catches regulatory attention quite like M&A activity. If processes are inefficient and records are messy, there may be complex issues lurking in the system, just waiting for an auditor to discover.
As with most things regulatory, M&A compliance isn’t a particularly fun or sexy side of a major business deal. But the stakes for mishandling licenses during an M&A deal can be high. For instance, survey respondents cited fines and fees as a top concern. And for good reason. Improperly licensed businesses can find themselves in a cascading series of financial penalties, according to Andrea Jaffe, Senior Director of Professional Services at Avalara.
Rounding out the top three concerns were business disruptions and M&A delays. Both are valid concerns, and can even be more severe than fines and fees. While the latter can be expensive, serious interruptions in business threaten process and cash flow, with impacts to staff, customers, vendors, public perception, and future financial stability.
