BLP (20) - Acquisitions
Terms
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- How should you refer to a company that is being took over?
- The Target
- How do you refer to the purchase of a listed company?
- A takeover
- How can you value a company?
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1. Book value;
2. 'Going concern'; or
3. Future cash flows. - Describe a book value valuation.
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1. Look at the balance sheet value of the assets (may not be the true value as is the book value); or
2. Value of the company's assets at the break-up value (how much would be left if all assets were sold and liabilities paid). - What is the sale of a company as a going concern?
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(1) Book or break-up don't represent how much a company's worth as a money generating business.
(2) A 'going concern' valuation will take into account current performance and future prospects for the co's products and services. - Describe a future cash flow valuation.
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(1) Investor considered to be buying a future stream of income;
(2) so take a number of years multiple of future profits. - What are the two ways in which you can purchase the business of a company?
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(1) Share sale
(2) Asset sale - What happens in a share sale?
- The buyer purchases the issued share capita of a company.
- What are the implications for the Target once a share sale completes?
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1. the company itself does not change;
2. continues trading as it did before;
3. has a new owner. - How are shares transferred for the purpose of a share sale?
- Stock transfer form
- Describe an asset sale.
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(1) Assets purchased as a 'going concern', i.e. whole of business purchased;
(2) Business can still trade after completion;
(3) Each asset needs to be transferred separately, e.g. TR1 for property, IP rights assigned or licensed and contracts assigned or novated. - How are employees treated for the purpose of an asset sale?
- Employees automatically transfer to the buyer under TUPE.
- What are the implications for the Target once an asset sale completes?
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1. Ownership of company does not change;
2. Company continues to exist;
3. The business that the company has sold does however change hands;
4. Becomes a 'cash shell' if it has no other assets. - For the purpose of paying purchase monies, who gets paid in an asset and share sale?
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Share sale - paid to owners of shares;
Asset sale - paid to owners of assets.
Both above could be corporates or individuals. - As a general rule, who usually prefers share sales?
- Sellers
- What are the advantages of a share sale from the perspective of a seller?
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1. Clean break;
2. Able to walk away from the company;
3. Sells all actual/potential liabilities.
- What are the disadvantages of a share sale from the perspective of a buyer?
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1. Buyer acquires company's liabilities as well;
2. More due diligence required. - As a general rule, who prefers asset sales?
- Buyers
- What are the advantages/disadvantages of an asset sale from the perspective of a seller?
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1. Good if Co has loss making division;
2. Seller retains the assets and/or liabilities that the buyer doesn't want. - Key points related to a Confidentiality Agreement?
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1. Keep information secret
2. Usually indefinite
3. Mutual undertakings given - Key points related to the Heads of Agreement?
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1. Basic understanding of deal;
2. Expression of intention only;
3. Not legally binding
4. If contains exclusivity/lockout - those parts must be stated to be binding. - What does exclusivity mean in the context of acquisitions?
- Seller undertakes not to solicit offers for the Target from any other source provided completion takes place by a certain date.
- Why do buyers insist on some form of exclusivity?
- Buyer doesn't want to legal/accountancy costs.
- What is a buyer always subject to?
- The maxim of caveat emptor - buyer beware
- Key points related to DD?
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1. Buyer sends DD questionnaire to Seller;
2. Buyer "attends" a data room;
3. Lawyers complete legal DD;
4. Accountants complete financial, accounting and tax DD;
5. Both prepare a DD reportr - What are warranties?
- Statements of fact.
- In the context of the AA, in relation to what are warranties usually given?
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1. accounts
2. employees
3. IP
4. real estate
5. contracts and trading arrangements;
6. disputes, and
7. taxation - What are indemnities?
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1. Promises made by the seller
2. to to reimburse the buyer
3. for any loss it suffers
4. in connection with contingent liabilities - What are seller protection provisions?
- Intended to limit seller's liability for breach of warranty claims. They usually contain a time limit and upper limit ('de maximus')
- What is the usual de maximus level?
- Usually, at most, the consideration paid by the buyer.
- What is the key agreement in a share sale?
- Share Purchase Agreement (SPA)
- What is set out in the disclosure letter?
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1. Seller sets out
2. the details of any matter
3. which make the statements of fact
4. given in the form of undertakings
5. untrue - What two types of disclosures will often be made in a Disclosure Letter?
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1. General disclosures
2. Specific disclosures - What do general disclosures relate to?
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1. Searches of public registers
2. that the buyer should do
3. prior to completion
For example, searches of the Register of Companies and Land Registry. - How will a seller usually seek to position general disclosures?
- As being deemed to have been disclosed - buyer may seek to resist or narrow.
- For the purpose liability, what will the buyer usually insist?
- That there's more than one seller, and that all sellers give any warranties on a joint and several basis.
- What is joint and several liability?
- Each seller assumes the obligation collectively (on behalf of all about) and individually (for himself).
- What is several liability?
- Each individual is liable for an agreed specified proportion of the potential amount.
- What is joint liability?
- Basically the same as joint and several. However, the death of a party who is jointly liable will release his estate from liability.
- What is commonly referred to as a bible and when is one prepared?
- Copies of all executed completion documents. A lawyer pulls the documents together and every part receives a copy.