M&A: What you need to consider for sale and purchase agreement

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Before diving headlong into drafting the sale and purchase agreement for an M&A transaction, take some time to understand the business of the target company and the regulatory framework in which it operates.

Consider the following:

1.ย ๐—•๐˜‚๐˜€๐—ถ๐—ป๐—ฒ๐˜€๐˜€ ๐—”๐—ฐ๐˜๐—ถ๐˜ƒ๐—ถ๐˜๐—ถ๐—ฒ๐˜€: What are the business activities of the target company? What products or services does it offer?

2.ย ๐—ฅ๐—ฒ๐—ด๐˜‚๐—น๐—ฎ๐˜๐—ผ๐—ฟ๐˜† ๐—™๐—ฟ๐—ฎ๐—บ๐—ฒ๐˜„๐—ผ๐—ฟ๐—ธ: Which laws, guidelines or governmental policies govern the business and operation of the target company?

3.ย ๐—Ÿ๐—ถ๐—ฐ๐—ฒ๐—ป๐—ฐ๐—ฒ๐˜€ ๐—ฎ๐—ป๐—ฑ ๐—ฃ๐—ฒ๐—ฟ๐—บ๐—ถ๐˜๐˜€: What licences, registrations with authorities and permits are required for the target company to operate legally?

Understanding the above will help you to:

1.ย Tailor representations and warranties to suit the business of the target company.

For example, a manufacturing company may require extensive representations and warranties related to machinery, while a fintech company may require representations and warranties relating to intellectual property and data security.

2.ย Structure the transaction in a manner that complies with regulatory requirements.

For example, there are restrictions on certain industry sectors that mandate a minimum percentage of Malaysian shareholding, such as the logistic, insurance, and oil and gas industries. Any acquisitions in these sectors must comply with the shareholding requirement.

3.ย Include conditions precedent in the transaction agreements to procure necessary consents from relevant regulators to ensure a smooth transfer of shareholding or ownership.

4.ย Plan for post-completion steps, such as notifying relevant authorities of the change of shareholders, if required.

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This post was first posted on LinkedIn on 5 October 2023.

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