How does a buyer ensure the shares that the buyer acquires in a company are free from liabilities which the buyer doesn’t intend to assume?
The first step is conduct due diligence to find out red flags about the company. The scope of due diligence depends on the buyer’s risk appetite and the size of the deal. Due diligence may include legal, financial, operational and tax matters. Once the issues arising from the due diligence …
Seller’s verbal representations in M&A transaction
As a buyer, do you rely on verbal representations made by the seller before you engage your lawyer? In a sale and purchase of shares or assets, the seller and buyer may have been negotiating the deal for some time before they engage their respective lawyers to draft the sale …
Frequently negotiated clauses in SPA
In an asset or share sale and purchase agreement, what clauses are typically negotiated at length? From my experience, the following areas are usually heavily negotiated: – Limitation of the parties’ (usually the sellers’) liabilities – Exclusion of the parties’ liabilities – What gives rise to the right to terminate …
Provision of guarantee to associated company etc after disposal
When a PLC disposes of part of its shares in a subsidiary (target company) which results in the target company becoming an associated company or joint arrangement of the PLC, the provision on financial assistance under the Listing Requirements should be taken into consideration. If the PLC or its other …
Key milestones for M&A transaction
• Due diligence A seller may allow a buyer and its advisers to conduct due diligence on the target company/asset up to a cut-off date. This is usually a hectic time for the lawyers conducting the legal due diligence. • Execution of agreement The days leading up to the SPA …
Common issues in M&A transactions
Common issues in M&A transactions: • Guarantor The seller and buyer may want the other party’s obligations under the sale and purchase agreement (SPA) to be guaranteed by another party (usually the holding company or shareholder) if the seller and buyer do not have strong financial means. • Limitation of …
M&A: Change of name
A company which is the subject matter of a sale and purchase transaction may have certain words as part of its name, which are same as the names of other companies incorporated by the same shareholder. Where shares of such company are sold to a buyer who is unrelated to …
M&A: Issues with the assets or company?
A buyer may discover in the course of due diligence that there are issues with the assets or shares which the buyer intends to acquire, such as regulatory approvals required to carry out the business are not in order, non-compliance of conditions of licences or breach of terms of contracts. …
M&A: Does the buyer have financial standing to replace guarantee?
In a sale and purchase of shares, a seller should consider the likelihood the buyer is acceptable to financial institutions as a guarantor to replace the seller, if the target company’s borrowings are secured by substantial guarantees. It is common for the buyer to provide an undertaking in the sale …
Exclusivity period
Parties in M&A transactions may sometimes enter into heads of agreement to set out the key terms and conditions on how they intend the transactions to proceed, prior to the negotiation and execution of sale and purchase agreements. The buyer should request the heads of agreement to include an exclusivity …