I’d like to compare the pros and cons of buying a regulated entity versus applying for your own license.

• The main advantage of buying a licensed company versus creating one and applying for the license is that you can continue to operate an existing business. With the new entity, you will have to wait until you are licensed.

• The main disadvantage of buying a regulated entity is that you always inherit some liabilities or obligations towards third parties ➝ employees you don’t want to keep, former board members or former advisors who need to be terminated, duplicated service contracts with vendors or partners, potential audit issues, customer complains or promises made to customers.

Let’s assume the acquisition scenario – you want to buy a company, bring in a new team and expand or combine your services. From the regulatory perspective, there are two areas where you need approvals:

• Change in control – meaning that there will be new owners of the company, a new management team, and the new boards of directors

• Change in the business model – meaning you will have new customers, new services, new technology, and new outsourcing arrangements

Another important change is the flow of funds that will go into your bank account after the acquisition. It is not a regulatory change but as soon as your bank will see new flows, they will likely block the account and start asking questions. The bank does not need to approve your new team or the change in control, but they will likely want to approve your new business model. This is why it is an important stakeholder to keep in mind and get them aligned. You cannot just assume that the new entity will inherit all the bank accounts and banking relationships.

Now – in order to assess the complexity of the process, let’s talk more about how the change in control is getting approved by the regulators.

• You may need to do prior notification to the regulator about the planned change in control (but a lot of companies don’t actually do it, because the deal can fall short at any time before it’s signed).

• You will definitely need to submit information about the new controller, new board, and new management team once it’s determined who will do what in the new structure.

• There is also a need to submit the new regulatory plan in most cases where it’s a true acquisition and not just an additional round of funding.

Which deals or acquisitions are easier:

• When it’s just a funding round and the new shareholders don’t actually change much about how the business is run, you simply have a change in the capital structure and potentially a new board member. Your business model does not change, your operations don’t change which is why it’s easier to process.

• When the businesses already worked together and are truly complementary (e.g. can be in a customer/service provider relationship), in case the business activities can continue and expand purely based on the commercial contracts, and when the cap structure is finalized. Let’s say Tesla wants to accept bitcoins as payment options, they buy BitPay and until all the shareholder relationships are finalized, they can still be in the service agreement with each other.

• When both entities are regulated, meaning their teams have been vetted as fit and proper by regulators, they have policies in place and the regulator of the acquiring company won’t have concerns about the new team.

What makes the change of control difficult to approve?

• When the new shareholders have reputational or credibility issues and are having hard times providing explanations about their sources of funds and wealth (I am thinking about Binance being declined as a potential buyer of the Union Bank in Liechtenstein). 

So, now you hopefully see what makes acquisition easier or more complex, and can decide which process will take longer.

To summarize: the closer you are to the scenario where everything will change and everyone will be replaced, the closer you are to a place where it’s almost the same effort as if you were creating the company from scratch and applying for your own license.