What Buyers Should Review Before Signing

Fashion deals in Los Angeles move fast. A label can look strong online yet still hide risk in trademarks, wage rules, customs, or privacy. If you plan to buy a fashion company in California, careful due diligence helps you price risk and sign an agreement that avoids costly fixes later. This guide provides a practical roadmap with direct references to key laws and agencies.

We focus on fashion mergers in CA and on patterns common in Los Angeles. The goal is fashion business due diligence that tests what truly drives the brand.

Why Buyers Search for This Guidance

Data rooms look impressive: lookbooks, retail scorecards, license ledgers, and marketing decks. The volume builds comfort. The problems sit one layer deeper.

A long license might lock a key category. A distributor may hold rights that block your direct-to-consumer plan. Payroll files might not match California garment wage rules. Customs documents can be incomplete for cotton or leather. Privacy notices might not match the tracking tools on the site. Good diligence turns the seller’s story into testable claims, then converts gaps into price changes, special indemnities, or closing deliverables.

A Simple Map for Fashion M&A

Think in six lanes:

• Corporate structure and capitalization
• Intellectual property
• Licensing and commercial contracts
• Workforce and compliance
• Supply chain and product integrity
• Data, privacy, and ecommerce

In each lane, run high-impact checks that expose facts that move value.

Corporate Structure and Capitalization

Map ownership first. Many labels keep trademarks in a holding company while the operating company sells product. Review company records and confirm that past IP transfers were recorded and can move at closing.

If the deal is large, check federal merger control under the Federal Register’s 2025 HSR threshold update and FTC premerger resources. For 2025, the size-of-transaction threshold is $126.4 million. The standard waiting period is 30 days after complete filings. Shorter timelines apply to certain cash tender offers and bankruptcy sales.

Review every preferred round, SAFE, and side letter. Rights such as liquidation preferences or redemption can change your cap table after closing. If the operating company uses trademarks owned by a holding company, confirm the license remains valid through closing and that assignment paperwork is staged for filing in the USPTO Assignment Center.

Intellectual Property That Carries the Brand

A fashion brand’s value sits in names, logos, and campaign assets. Go beyond a register printout.

Check U.S. trademarks and major foreign filings. Confirm the owner matches the seller and that assignments are recorded properly. Use USPTO ownership-change guidance and record transfers in the Assignment Center so the public chain matches the deal at closing.

Copyrights matter for prints, graphics, and lookbooks. The U.S. Copyright Office’s visual-arts registration page explains what to file and how registration supports enforcement.

If the brand hosts user uploads or reviews, review takedown procedures under 17 U.S.C. § 512 (DMCA safe harbors). Keeping those steps in place helps limit copyright exposure.

Licensing, Royalties, and Channel Control

Licensing can extend a label into footwear, eyewear, fragrance, and home goods, but it can also cap growth. Review territory, channels, quality control, audit rights, and how “Net Sales” is defined. Reconcile a sample quarter of royalty statements to shipments and returns.

Influencer and talent contracts need the same care. Paid content must include clear disclosures. The FTC Endorsement Guides Q&A explains what counts as “clear and conspicuous.” Align contracts and posts to that standard.

Commercial Contracts and Real Revenue Risk

Read major retail, marketplace, and distributor agreements closely. Short termination rights can shrink valuation. “Most-favored” terms may carry pricing obligations into new channels. If resellers can list products on open marketplaces without price discipline, margins drop.

Review scorecards, return rates, and chargebacks. Compare performance to contractual rights. Verify buyer contacts at key accounts and note which contracts allow quick exits. These details can change post-closing revenue stability.

Workforce, Wage Law, and Noncompetes in California

If production happens in Los Angeles, focus on wage exposure. California labor rules in the Labor Code require strict payroll compliance. The Garment Worker Protection Act bans piece-rate pay for employees engaged in garment manufacturing and extends responsibility to brands that subcontract work. Review hourly payroll samples, contractor rosters, and oversight records with reference to the Labor Commissioner’s garment-industry portal.

California law also restricts noncompete clauses. Business and Professions Code § 16600 bars most restrictions, and § 16600.1 added a 2024 notice duty requiring employers to tell workers that noncompetes are void. Use compensation and confidentiality protections instead.

Worker classification remains critical. The California ABC test presumes workers are employees unless all three conditions are met. Map roles like stylists or photographers carefully to avoid misclassification.

Supply Chain, Customs, and Import Exposure

A fashion label is a supply chain with a logo. Trace materials to a level that satisfies customs and import laws. Focus on cotton, leather, and trims where forced-labor risk may appear.

The Uyghur Forced Labor Prevention Act (UFLPA) sets a presumption that goods from certain regions are made with forced labor. Review the CBP UFLPA overview and its operational guidance for importers. Request full bills of material, supplier declarations, and transaction-level traceability. Generic supplier letters are not enough.

Also review inspection logs and quality-control records. High return rates for poor stitching or sizing can indicate systemic production issues that affect valuation.

Product Compliance and Labeling

Care labels and fiber content rules are easy to overlook but costly to miss. The FTC Care Labeling Rule (16 C.F.R. Part 423) requires clear, regular care instructions for textile garments. Compare tech packs and sample garments to actual labels.

If you sell in California, Proposition 65 warnings may apply. The OEHHA safe-harbor update (effective January 1, 2025) revised label language and provides a transition period until January 1, 2028. Plan updates before closing.

Data, Privacy, and Ecommerce

Direct-to-consumer brands depend on customer data. California’s CPRA amended the CCPA and created the California Privacy Protection Agency, which works alongside the Attorney General’s CCPA unit.

Review privacy policies, consent banners, and opt-out links. Verify that data-processing agreements with ad platforms and analytics vendors meet state standards. Update notices to reflect live tracking tools and actual data uses.

Monitor chargebacks, fraud rates, and takedown logs for counterfeit complaints. These numbers often predict future disputes.

Turning Documents Into Decisions

Treat diligence as an ongoing loop. Start with key tests, then dig deeper when facts and records diverge.

Run a trademark audit. Match ownership records to seller names and prepare assignments for the USPTO Assignment Center. Sample influencer campaigns and compare contracts to posts using the FTC Endorsement Guides. Trace high-volume SKUs from raw materials to finished goods following CBP’s UFLPA importer guidance.

Finally, align the public privacy notice with what the site actually collects and processes under CPPA and CCPA frameworks.

Red Flags That Predict Post-Closing Problems

Too many intent-to-use trademarks without proof of use. No assignment records for key visuals. Payroll invoices showing piece-rate pay. Unsupported sustainability claims. Distributor deals that terminate with short notice. Each signals extra work before or just after closing.

Valuation Pressure Points in Fashion

Revenue concentration is common. If one retailer or marketplace drives a large share, model the impact if that channel pauses orders. Pricing power also matters. A brand that relies on constant discounts may train customers to delay purchases.

Inventory and return data tell a story that profit sheets may hide. Review return reasons and separate sizing issues from quality problems. For DTC-heavy brands, track repeat purchase rates and customer lifetime value under CPRA and CCPA rules.

This approach supports a long-term integration plan while protecting brand value.

Turning Findings Into Deal Terms

Let diligence shape your contract. If ownership gaps exist, require closing deliverables to fix them. For wage exposure, add a special indemnity with escrow. For customs risk, hold back part of the price until admissibility proof is confirmed. If key channels can cancel early, move a portion of consideration to an earn-out tied to stable sales.

For larger deals that require federal notice, coordinate timing under FTC HSR resources and the Federal Register’s 2025 threshold notice.

Practical Steps Before You Sign

• Build a small team for IP, labor, customs, privacy, and contracts.
• Pick five representative SKUs. Check trademark coverage, labeling, supply-chain traceability, and return rates.
• Review three influencer campaigns for disclosure accuracy.
• Reconcile one quarter of royalty statements with actual shipments.
• Compare the privacy policy to the live site banner and check consumer-request logs.

Use findings to list final deliverables, escrows, and post-closing steps.

Frequently Asked Questions

What federal laws apply to fashion mergers and acquisitions in the United States?

Fashion transactions must follow several federal laws that govern trade, data, and employment. These include Federal Trade Commission rules on advertising and consumer protection, the Care Labeling Rule for apparel, and wage standards under federal labor laws. Buyers should also confirm that the business meets all legal requirements before signing any agreement.

How does California labor law affect working conditions in the fashion industry?

California enforces some of the nation’s strongest labor rules. These cover working conditions, overtime pay, and compensation for garment workers. Under California law, brands that use contractors or third-party manufacturers may still be responsible for wage violations within their supply chains. Due diligence should include reviewing payroll, time records, and contractor compliance with these state and federal laws.

What data collection rules apply to online fashion businesses?

California’s CCPA, as amended by the CPRA, limits how fashion companies collect, store, and share customer data. Buyers should review all data-collection practices, privacy notices, and consent systems to confirm alignment with this act and other privacy laws. The law allows consumers to opt out of data sharing and requires transparent records about personal-information use.

What are the legal requirements for care labels on clothing sold in the United States?

Under the FTC’s Care Labeling Rule, brands must attach clear care labels explaining how to wash, dry, and maintain garments. Missing or misleading labels can lead to penalties and product recalls. Buyers should include a labeling review in the checklist to confirm that products meet all U.S. and California requirements.

How do social media and influencer contracts fit into advertising rules?

The Federal Trade Commission monitors influencer marketing to confirm that endorsements are honest and transparent. Any post or video with a paid partnership must disclose that relationship clearly. These disclosures fall under federal advertising authority. Buyers should review influencer contracts and social posts to confirm compliance with FTC guidance and to reduce post-closing liability.

What labor rules protect employees in California fashion businesses?

California labor rules require fair pay, safe workplaces, and limits on hours worked. Employees in design, production, or warehouse roles are entitled to overtime pay and proper meal and rest breaks. When reviewing a company, verify that employee handbooks, payroll records, and working conditions comply with state requirements.

Why are supply chains such a major concern in fashion mergers?

Fashion supply chains often involve global partners, so both federal rules and California labor law apply. Buyers must verify that suppliers follow ethical sourcing, fair labor practices, and customs regulations. Checking supplier audits and contracts helps confirm compliance with international and U.S. legal requirements and reduces future risk under import or labor laws.