8. Acquisitions Flashcards
What forces S to make appropriate disclosures on warranties
Need to qualify warranties
What is a tax covenant
Indemnifying B for tax liability arising before completion
What will B also negotiate under confidentiality agreement
mutual confidentiality undertaking
Why do employees transfer automatically under business sale
TUPE
Who sends DDQ
Buyer
Why is SS simpler
Only transfer 1 asset
What is the usual procedure for exchange and completion
Simultaneous
When might exchange and completion not be simultaneous
If there are conditions precedent
Pros of business sale for S
Sell loss-making business
What is the only possible acquisition for Ps and STs
Business sale (as no shares)
Two kinds of acquisition
Share sale and business sale
What is the basis between warrantors if warranty breached
J&S
What is the cause of action if warranty breached
BoW + damages
Are HoTs usually legally binding?
No only moral force
When might HoA be agreed
Always before contracts, but maybe even before lawyers involved
What transfers automatically under business sale
Employees through TUPE
What does the DDQ allow B to do
Make fully informed coice
What might lawyer advise as a result of DDQ
Price reduction
When are warranties given by S to B (at what point in the transaction)
At completion
Two ways S can qualify warranties given
Specifically or generally
What determines the extent of the DDQ
Type of acquisition, instructions, budget, price and assets being bought
Cons of business sale for B
Disruptive; need 3rd party consents; more complex as need separate transfer of all assets
When are indemnities less likely (kind of acquisition)
Business sale
Where does S qualify warranties given
In Disclosure Letter
Cons of share sale for buyer
More time/costs on due diligence due to liabilities + negotiating W/I; take company as it is
What can B try to agree with S in case of S’s BoW
Escrow for part of purchase price to cover any BoW claim, to be released when period ends
When might S and B get tax advantages - kind of acquisition
Share sale
Why is assignment easier to move contracts in business sale
Bipartite instead of tripartite
What two clauses in HoT are usually expressly legally binding
Lock-out agreement and confidentiality clause
What is a business sale
Sale of part of company (a business) as a going concern
Why must Target Ds approve share sale (MA)
MA 26
What do responses to DDQ highlight for B
Areas of concern
Who prefers business sale
Buyer
What does a lock-out agreement ensure
No competition for sale, reducing wasted costs and time in due diligence
What document qualifies S’s warranties
Disclosure Letter
Pros of share sale for B
No need for 3rd party consent, continuity and simpler
What document in share sale or business sale includes protection provisions for S
(Draft) Acquisition Agreement
Which assets of business transfer w/ business sale
Those chosen and listen
How long does confidentiality agreement usually last
Indefinitely
Why must M reg be updated in share sale
New Ms as shares sold
What PCR issue is necessary to keep in mind when acquiring another company
No illegal FA being given under 678/679
Cons of business sale for S
Unable to transfer undesirable parts; consideration only gets to Ms on winding up/dividend
Who prefers share sale
Seller
Pros of business sale for B
Cherry pick assets + liabilities
How does consideration get to Ms on share sale
Directly to Ms
When is the disclosure bundle prepared and by who
S’s lawyers, when disclosure letter drafted
What kind of indemnity will not be applicable to business sale
Tax covenant
Why might S prefer business sale
Wants to keep operating other parts of company
MA 26 provides for what
Target Ds must approve share sale
Why no need for 3rd party consent on SS
No change of party to the contracts/owner of assets
Pros of share sale for S
Clean break + consideration straight to Ms of company
Two examples of headings in DDQ
Licences/Consents, Trading/Contracts
Two ways to value a company
Book value of assets or valued as a going concern
Procedure for Share sale
STF –> B pays SD –> Target Ds approve –> Update M Reg
How does consideration get to Ms on business sale
Winding up/dividend
Why is there no determinative way to value a company
All are subjective
Two ways to move contracts in business sale
Assignment or novation
What S protection provisions might be included in Acquisition Agreement
Financial limit of liability and time limit for claim (shorter than 6 at common law)
Three ways S might try to reduce liability to B when giving indemnities and warranties
De minimis, de maximis caps and time limit in which claim to be brought
