Share Purchase Deals - Key Questions for Buyers
Monday, March 13, 2006
by
Catherine Feechan
When buying a company there are a number of questions to address at the outset. Having decided that a corporate acquisition is the most efficient way to go from a commercial perspective, what key questions should you be asking before putting heads of terms together?
1. Parties
1.1 Which company within your group will acquire the Company?
1.2 Do you require any type of guarantee from a parent company or a bank?
2. Funding
2.1. How will you be paying the consideration i.e. from working capital or is a bank loan or funds from directors/shareholders needed?
2.2. Will all the consideration be paid up front or will there be an estimated consideration and reference to completion accounts? If so, what is the basis for accounts and who prepares and pays for them?
2.3. How will the Consideration be split between the Sellers?
3. Conditions Precedent
3.1. Are there any conditions for completion of the deal? i.e. Landlords consent, consent from key contracting parties, board consent.
3.2. How long are you prepared to wait for consents?
4. Contracts
4.1. Which contracts are key – do they have change of control provisions and if so should completion be condition on consent?
5. Goodwill
5.1. What sort of restrictions do you want to place on the Seller post completion, if any?
5.2. What sort of actions might you need the Sellers to take post completion – communicating with customers etc?
6. Warranties and Indemnities
6.1. Are there any areas which are especially vital to get warranty protection on?
6.2. Are there any issues on which you will require any indemnity?
6.3. What limits on warranties are acceptable to you?
6.4. Do you want security for breaches of warranty - retention fund, guarantee or set off against deferred consideration?
6.5. Consider warranty insurance if sellers may be unable to pay claims or might disappear post deal.
7. Employment
7.1. Are any special arrangements needed to keep key people?
7.2. Are any specific indemnities needed?
8. Intellectual Property
8.1. Are you buying everything required for the business - if not be sure that you understand where
the gaps are?
8.2. How will computer records and information be transferred in practice? Will you need on-going co-operation of Seller in providing IT support for a time?
9. Environmental Issues
9.1. Are there any major environmental concerns?
9.2. If so, is there to be an indemnity in relation to these, should such an indemnity be time limited or capped?
10. Pensions
10.1. Are there any issues here? Take advice as soon as possible, legislation in this field is changing constantly and mistakes can be expensive.
11. Heritable/Leasehold Property
11.1. What property do you want? How long will landlords consent take?
11.2. Consider practicalities of taking over property – when will items not being acquired be removed etc?
12. Insurance
12.1. Do you need additional insurance cover in place to cover your enlarged business post acquisition?
Considering all these points before entering into negotiations, should allow a Purchaser to agree a deal covering all the major issues thus speeding up the transaction process.
If you have any queries please contact Catherine Feechan, Corporate Finance Partner on 0141 228 8000.
The information contained in this article is given for general information only and does not constitute legal advice on any specific matter.