Lecture 4 Flashcards
1
Q
SPA contract
A
Contractual regulation of
- Identification of transaction objects and parties
- Obligation to purchase/sell
- Ownership transfer
- Purchase price and purchase price adjustments
- Conditions
o External/internal approvals (supervisory board, suppliers/ customers etc.,)
o Authority clearance (merger control, BMWi)
o MAC (Material Adverse Change) - Conduct of business between signing and closing
o “Business as usual” - Representation and Warranties
- Sellers’s limitation of liability
- Indemnities
- Non-competition clause
- Transitional agreements
o “Transitional services” etc., - Purchaser guarantees
o Financing
o Merger control
2
Q
SPA steps
A
- From signing, the SPA regulates the position of the parties
a. Seller still owns and manages the business
b. Regulatory/antitrust clearances sought - Closing occurs if all conditions precedent have been fulfilled (typical conditions include Internal/external approvals, authority clearance, no MAC)
a. MAC can typically be either market-related (e.g., significant negative capital or business market development) or company-related (e.g., the significant negative operating performance of the target). “Materiality” of such events will be quantified and stipulated in the SPA
b. At closing, the purchase price is paid and the company (or asset) is transferred to the buyer - After closing, the SPA continues in force as the claim period for breaches of representation and warranties will run
3
Q
Warrants and Representation Overview
A
Overview:
- Represent or warrant that certain facts are accurate or that certain actions have been undertaken (e.g., we own the shares/assets)
- Can cover general issues
- Purchaser can claim damages for breach of contract if untrue, however
o Claims are subject to the seller’s limitation of liabilities
o Claims are qualified by disclosure letter
- Purchaser must prove loss caused by the breach and that he has mitigated his loss
- Contained in (nearly) every SPA in short or long form
- The difference between the representation and warranty relates to the type of damages that can be claimed (warranty is stronger)
4
Q
Typical R&P
A
5
Q
Indeminites
A
- Identifiable risks to the buyer (typically tax, environmental) that will be indemnified to the buyer in full (i.e., no limitation of liability)
- Buyer indemnified for a specific/discrete liability, obligation or expenses
- Contractual obligation for seller to pay in specific circumstances Potentially no limitation of liability (on limitation of liability s. next page) Separate agreements regarding time limits
- Usually given where the seller acknowledges that there is an identifiable risk to the buyer, which was within its (seller’s) control and which is not capable of being remedied before signing
o e.g., tax, environmental liabilities - No need for buyer to prove/ mitigate loss
- No qualification in the disclosure letter
6
Q
Locked box
A
- Seller provides a balance sheet and asks the bidders to base their purchase price on the position as at that date (i.e., Enterprise Value less all Net Debt and Debt-like items as at that date). The bidders have no influence on preparation of the relevant balance sheet
- Effective date (i.e., economic ownership transfer) is the balance sheet date
- The SPA will specify an interest rate on the purchase price from the balance sheet date to closing designed to reflect the cash generated in the business from the balance sheet date (= effective date) that is accrued to the benefit of the buyer
- Seller will provide warranties that it has not (and covenants that it will not) taken any actions outside the ordinary course of bus iness since the balance sheet date, e.g., No dividends paid out/received No debt repaid/taken
- No further adjustments are made, i.e., equity value does not change when e.g., assets such as working capital are converted to cash
7
Q
Closing accounts
A
8
Q
Benefits / Disadvantage
A
9
Q
PPA
A
10
Q
Goodwill
A
