Acquisitions Flashcards

Question

contracts in a share sale?

Answer 1

check for change of ownership clauses - alert them?

Answer 2

Must be transferred to Buyer (TR1) DOESN’T automatically change to B’s ownership Buyer can choose assets it wants to acquire from the Target to allow it to continue as a ‘going concern’ – e.g. IP, vehicles, goodwill, machinery, offices, stocks

Answer 3

B becomes owner (Premises still belongs to the Company)

Answer 4

Remains with seller as shell company

Answer 5

Remains with Target

Answer 6

SELLER - clean break from business (esp. if current owners are retiring individuals) - significant tax exemptions (for corporate seller on share sale) - consideration goes straight to SH

Answer 7

not many on the whole BUT - B may still negotiate certain warranties and indemnities from selling shareholders (not perfect clean break)

Answer 8

- STRAIGHT FORWARD (only need to transfer shares rather than transferring each asset comp requires to run business) - QUICKER NEGOTIATION - CONTINUITY (less disruption to business and to outside world looks like no change in business at all; ownership of prop same, employer same) - SIGNIFICANT TAX ADVANTAGES (SD on shares may be lower than SDLT on asset sale) - NO NEED TO OBTAIN 3P CONSENTS (for contracts - customers, suppliers, LL, others)

Answer 9

- more time/costs spend on due diligence (B acquires target with all its liabilities) - more negotiation (warranties and indemnities to protect B) - B acquires target with all its liabilities and any problems

Answer 10

BUYER - B decides what assets and/or liabilities it wants to purchase and what assets it wants to leave behind (good if T has lots of liabilities, cherry picking) - tax advantages (depending on nature of assets B is acquiring)

Answer 11

- more negotiation of exactly what assets and liabilities are going to be purchased - each asset must be transferred separately (complex, docs, time and admin costs) - disruption of continuity of business - 3P consents likely to be required (assignments and novation) alerting other parties to the sale (causing uncertainty and disruption)

Answer 12

If Seller wants to retain profitable parts of business but sell loss making or non-core division S has freedom to sell only part of its business in an asset sale

Answer 13

- NO CLEAN BREAK (can't transfer assets/liabilities to B unless B wants them) - consideration goes to selling company so money must be passed onto SH by dividend/winding up of shell comp after sale

Answer 14

1. CONFIDENTIALITY AGREEMENT (both sides) 2. Heads of term/agreement 3. due diligence 4. acquisition agreement . (consideration, warranties, indemnities, vendor/seller protection provisions, agreement for completion, details of issues at completion) 5. disclosure letter addressed to B from S 6. completion documents

Answer 15

S gives sensitive info to B so S asks for confidentiality agreement - usually continues indefinitely unless private equity house is involved (then seen subject to time limit of 2-3 years) - B asks for mutual confidentiality undertaking from S usually

Answer 16

- how much will B pay - what form of consideration (cash, shares, loan notes), - when paid - how consideration apportioned between assets required (on asset sale

Answer 17

- same time as exchange? | - conditions precedents? (if yes = time gap)

Answer 18

- completion BM of B, S, T | - what needs to be executed (e.g. STF)

Answer 19

Limits S’s liability for breach of warranty by qualifying warranties - sets out details of any matters which make statement of fact given in warranties untrue - two types of disclosure: FRONT END: GENERAL DISCLOSURE - refers to searches of public reg that B should do prior to completion (e.g. CH/LR) - S seeks to ensure anything B could find in these searches are deemed disclosed - B seeks to resist this and make it narrow BACK END: SPECIFIC DISCLOSURES

Answer 20

SERVICE AGREEMENTS for directors/managers of Target (for those staying or brought in) TAX DEEDS (usually a schedule in SPA now) - indemnity from S to B re: tax issues (share sales) NOVATION/ASSIGNMENT AGREEMENTS – for transfer of 3P contracts (asset sales) COMPLETION BOARD MINUTES (T, S, and B) STATUTORY FORMS – e.g. to notify CH of change to T’s registered office, auditors, and directors TRANSITIONAL SERVICES AGREEMENT – if T being provided with key operational services (e.g. HR/accounting/IT) by parent or sister company prior to completion, B may need those services to continue for a short period after completion (ensure no problems with continuity of trading after completion and to allow T to find alternative supply for services)

Answer 21

B usually insists all sellers give warranties on joint and several basis (sue all or any for full amount and leave them to apportionment between themselves) if several - must bring proceedings against individual sellers if joint - similar to joint and several but death of a party jointly liable releases his estate from liability (must issue proceedings against all joint parties)

Answer 22

splitting the bill Entitles joint warrantor who is found liable to pay damages for breach of warranty to seek contribution from the others liable for the same damage Court will evaluate amount each party should pay to sued seller based on what court consider just and equitable having regard to each party’s responsibility for damage in Q

Answer 23

Sellers won’t want court to decide amount they should each contribution Common for sellers to agree ‘Contribution Agreement’ to which they will refer should successful warranty claim be made E.g. minority SH (who does not have much involvement in running company) to have low cap set on any contribution he may have to pay This agreement doesn’t affect B’s right to choose who to pursue for a claim

Answer 24

B and S (and their representatives) will meet to complete the transaction All acquisition documentation signed All relevant completion board meetings Usual for last minute negotiations to take place at completion meeting

Answer 25

Completion meeting = formality only No last minute negotiations

Answer 26

deal with integration of new business into existing business (if it has one)

Answer 27

statutory filings update statutory books pay stamp taxes

Answer 28

Customary for either B or S’s lawyers to put together a ‘bible’ of copies of the executed completion documents Every party will receive a copy of the bible Used by parties to remind them of terms of the transaction when necessary in the future

Answer 29

1. take instructions 2. agree heads of terms 3. DD1 4. acquisition agreement 5. disclosure letter (S) 6. exchange 7. consents, conditions 8. completion

Answer 30

set out the KEY TERMS of the transaction as agreed between the parties in principle set out KEY STEPS parties have agreed they will/will not take during negotiations

Answer 31

- AVOID misunderstanding, wasted time, costs, for both parties - ensures parties have same goal in mind - give parties structured basis for negotiating main contract - acts as road map of steps that need to be taken before formal agreement is signed - starting point for parties' advisors

Answer 32

GENERALLY: NOT legally binding (but might contain some binding provisions) non-binding parts carry MORAL FORCE (confirm serious intent and commitment on part of both parties to observe terms agreed) - parties can proceed with confidence - can limit flexibility with later negotiations

Answer 33

For it to have contractual force, must follow usual contractural rules of consideration, execution and expressly state it is legally binding

Answer 34

EXCLUSIVITY CLAUSE - protects B against wasted time and cost (DD investigation + negotiation) - prevents S negotiating with other parties for a fixed period - gives B confidence in proceeding (won't lose out to rival bidder) (NB. this is a 'lock out' provision which is enforceable if sufficiently certain a 'lock in' one is not )

Answer 35

beginning of the transaction once parties have agreed preliminary terms but before definitive agreements have been drafted - before significant costs incurred - sometimes agreed before lawyers are instructed by parties

Answer 36

Provisions setting out terms of deal itself

Answer 37

Provisions re: things that will already have happened by time of exchange Provisions that set up steps parties will/will not take during negotiations because: by the time SPA is signed they will already have been dealt with

Answer 38

FACT FINDING MISSION - B is subject to caveat emptor (buyer beware) - B’s responsibility to ensure it obtains all information relating to company/business - DD provides B with as much info for B - allows B to make informed choice about whether to purchase, what contractual provisions/protections are required

Answer 39

DEPENDS ON CIRCUMSTANCES factors: - structure of sale (share or asset, if share, more DD because all problems/liabilities are being purchased) - amount of consideration - client instructions - types of assts being purchased

Answer 40

1. B's solicitor prepares and sends DD questionnaire (doc setting out different areas about which B requires info) 2. Seller and its solicitor reviews it and prepares response (either answer Qs one by one, or refer B to docs for B's solicitors to work out, or combo of 2) 3. B may have further questions as a result of response 4. DD reports prepared for B (usually more than 1 type of DD report - financial, legal, environmental, IT, property) 5. DD report and implications help inform B's next steps (reduce price, contractual warranties, indemnities?)

Answer 41

* Target’s properties * Main contracts/trading * Tax issues & Finance * Employees * Corporate * IP * Licenses/Consents * Litigation/Disputes

Answer 42

FULL FORM(setting out comprehensive information about all aspects of the target and its business) or Prepared on an “exceptions only” basis (i.e. focusing only on issues which are material and problematic) In addition, the client may request an oral report

Answer 43

1. Please provide details of all trade marks, service marks, and registered designed owned or used by the Target and details of all registrations 2. Please provide details of all copyrights, unregistered designs, databases, and industrial drawings owned or used by the Target

Answer 44

1. Please provide the details of all properties held by the Target. 2. Please provide details of any leases leased out by the Target as a landlord.

Answer 45

1. Are there any disputes or litigation ongoing? | 2. Are there any disputes or litigation threatened?

Answer 46

1. Please provide details of the Target’s bankers. | 2. Please provide details of any debt owed by the Target.

Answer 47

1. Please provide the employment contracts or memorandum setting out the terms of the directors and senior employees of the Target 2. Please provide details of employees of the Target.

Answer 48

1. Please provide details of any on-going contracts. | 2. Please provide contact details of the parties which the Target company is currently contracting with.

Answer 49

1. Book value (balance sheet value of assets or break up value) - doesn't reflect true value 2. GOING CONCERN - rather than broken up and sold (depends on how comp is performing and future prospects) 3. FUTURE CASH FLOW (purchaser is buying future stream of income generated by profits, value comp by taking a number of years' multiple of future profits) - equate with return investor receives over time

Acquisitions Flashcards

(73 cards)