Evaluation of Bids & Forms of Consideration

Question 1

Amount of consideration: Debt/cash free basis

Answer 1

Consideration is set on the assumption that there is NO CASH OR DEBT in the Target

Parties need to know how much cash and debt actually is in the Target

PP will be adjusted to take account of any cash/debt which completion accounts show in Target @ completion date.

Question 2

Amount of consideration: NAV basis

Answer 2

Consideration based on NAV of the Target, taken from last audited accounts

PP will be adjusted post-completion to reflect any material change based on completion accounts (since date of last audited accounts)

Question 3

Post-completion, what happens if the Target completion accounts show NAV higher than expected?

Answer 3

If debt/cash free basis of NAV basis chosen, price is increased and the Buyer must pay more consideration

Question 4

Amount of consideration: Locked box mechanism

Answer 4

Parties agree to set a fixed PP - look at the Target’s recent audited balance sheets (the locked box accounts)

No mechanism for adjustment post-completion

Question 5

Forms of consideration?

Answer 5

1) Cash
2) Shares - Buyer will give shares in itself to Seller
3) Loan notes - Doc containing terms of Buyer’s debt to Seller

Question 6

Earn-out

Answer 6

Part of consideration paid on completion date
Part is deferred (uncertain, deferred consideration)

Buyer likely to request a set-off clause

Question 7

Retention account/escrow

Answer 7

Certain amount of consideration placed in a joint account (operated by both parties’ solicitors)

Question 8

Set-off clause

Answer 8

Contractual right to set off any sum the Buyer is owed in relation to any warranty/indemnity claim on the consideration