SGS 20 (Acquisitions) Flashcards
What is the purpose of Heads of Terms?
To avoid misunderstanding, wasted time and costs and ensuring have same goal from outset.
key terms of the transaction as agreed between parties in principle.
What is the purpose of due diligence?
Provides buyer with as much info as possible to make an informed choice about whether or not to purchase a target or whether further contractual provisions or protections are needed
Three advantages of a share sale from the buyer’s perspective?
Fewer third party consents
Continuity
potentially quicker
Disadvantages of share sale from buyer’s perspective?
Acquires target with all of liabilities and any problems.
Advantage of asset sales to buyer?
Cherry pick assets and liabilities it wants / does not.
Disadvantages of asset sale to buyer?
Lack of continuity
more documentation to transfer each asset separately
consents such as ovations and assignments may be required.
Disadvantages of an asset sale to the seller?
Buyer can cherry pick so may be unable to transfer certain liabilities.
Consideration does to selling company and must then be passed to SH by dividend.
Who prefers asset and share sales?
Buyers prefer asset sales
Sellers prefer share sales.
what is the status of a company after a:
Share Sale
Asset Sale?
Consideration paid directly to shareholders, Target now a subsidiary of the Buyer.
Consideration paid to selling company which continues as a cash shell and buyer owns sufficient assets of selling company to run a business.
What happens to employees following an asset sale?
They are directly transferred to buyer via TUPE.
What form of security is helpful in an asset sale?
Warranties and indemnities directed at the specific assets.
Retention amount.
Issues if DD indicates an employee is leaving?
are restrictive covenants likely to be enforceable? Check service contract for wording.
seek indemnity in respect of attempting to enforce restrictive covenants.
retention account to fund warranty or indemnity claims.
termination agreement with employee before they leave in which enforceable restrictive covenants are signed up to.
Issues if DD reveals potential for future litigation?
Reputational effects
cost of future litigation
request further info: legal advice, commenced, amount of claim etc.
Options if DD in share sale indicates potential for future litigation?
warranty that there is no litigation
indemnity for costs incurred.
retention account for warranty and indemnity claims
reduction in purchase price
restructure as asset sale (doesn’t help reputation though).
