M&A Negotiating and Drafting

Question 1

Departments involvedin advising a buyer undertaking M&A deal

Answer 1

1. Corporate department
2. Finance department
3. Employment department
4. Property department
5. Intellectual Property department
6. Litigation department

Question 2

Due Diligence

Answer 2

The process of investigating a company to determine whether it is worth buying and on what terms sit should proceed

+ determine valuation (real value proposition) and confirm all factual assumptions and valuatioins

Question 3

The purpose of legal DD

Answer 3

To find out whether there are any liabilities tied to the assets being purchased, or any charges over these assets, whether any consents or approvals or notifications are needed to proceed with the acquisition

Question 4

If a law firm uncovers a significant problem when undertaking due diligence, what options can it suggest to the client?

Answer 4

1. Try to find out more informatoin
2. Talk to the buyer - maybe not considered an issue
3. Ask seller to resolve the issue before proceeding
4. Adjust purchse price to reflect additional cost
5. Put money aside nito an escrow account
6. Insert term into the gareement (warranty or indemnity)
7. Walk away

Question 5

Escrow Account

Answer 5

Account managed by an escrow agent, a trustee, who will hold the asset until predetermined contractual obligations are fullfiled or f the problem materialises

Question 6

Warranties

Answer 6

Statements of fact aboutthe state of the target company or is particular assets or liabilities

Purpose: encourges S to disclose information not found during DD; cannot be found in breach of warranty if adequately disclosed in Disclosure Letter

Question 7

Indemnities

Answer 7

Promise to compensate the party for identifiied loss or cost in an event that it occurs, e.g. environmentalal, litigation or tax issues

Question 8

Representations

Answer 8

Contractual statements about target company, which induced the buyer tooenter into the contract

Question 9

Differences between warranties and representations

Answer 9

Claim for misrepresentation -> right to terminate contract

Claim for breach of warranty -> damages

Question 10

Differences between warranties and indemnities

Answer 10

1. Purpose
   - Indemnity: specific, known liabilities
   - Warranty: unknown liabililties/losses
2. Damages
   - Indemnity: all losses can be recovered on pound for pound basis if event takes places
   - Warranty: subject to C taking reasonable steps to mitigate loss and rules of remotenesss

Question 11

Breach of representation

Answer 11

Right to terminate the contract (rescission) and B is to be put into a positioin he would have been in had he not entered into the contract; - higher damages than warranty

Question 12

Conditions Precedent

Answer 12

Conditions need to be fulfilled before transaction is completed & before deal goes ahead
Located in the Share Purchase Agreemment (SPA)

Question 13

When could conditions precedent be used in an M&A deal?

Answer 13

If parties wanted to sign the acquisition document but they were still waiting for a regulatory approval, change of control assent, or consent from a bank (security discharge) – they can insert condition precedent thta it can oncly come into effect once this event takes place

Question 14

Non-disclosure agreement

Answer 14

• First document signed
• Legal agreement to keep information private
• Inclydes 1) definition - ex cluding info in public domain; 2) list of authorised persons who may be disclosed info; 3) buyer undertakng he will return/destroy any confidential info iif acqusitioin fails

Question 15

Why is NDA important?

Answer 15

acquisition information must be kept confidential as if the market new that B approached the company it could affect his ability to actually acquire the company

Question 16

Letter of Intent (=Exclusivity Agreeement)

Answer 16

• signed before going through DD process
• High-level record of principal commercial terms agreed between the parties to guide the parties until the closing
• non-binding, but some bnidiing terms (confidentiality, exclusivity agreemment or clauses, termination provision)
• it commits parties, identifies areas for negotiation and sets out price range

Question 17

What is included in the letter of intent?

Answer 17

o Parties to the transaction
o Overview and timetable
o Structure of the acquisition process, price (incl. terms of the payment, how company is valued and what to do if valuations change)
o Additional terms (warranties parties want to cover in the acquisition, how the acquirer plans to finance the acquisition, scope of DD review)