ACQUISITIONS
Valuing a Company
If listed then share price will be quoted on a stock exchange so can place market value, but may not be
representative of value if well managed and not available if not listed, therefore use -
- Book Value: Balance sheet value, may not be true reflection or break-up value, value if all assets sold and
all liabilities paid.
- Going Concern: Worth more as a money generating business than broken up and sold, depends on how
well performing and future prospects.
- Future cash flows: Investors buying a company expect future return, so use present value and profits and
multiply by a number of years, not including increase in value of the company when it is sold.
Acquiring the Business of a Company
A company limited by shares is owned by SH with shares that can be transferred – 2 ways to acquire:
Share Sales - Acquire all the shares in the company.
- Buyer purchases issued share capital of a company from SHs – transfer using stock transfer form.
- Can purchase some so not wholly owned, but usually buy all to avoid issue of minority SHs.
- Target company continues to operate as before but with a new owner.
- Original SH receives consideration for their shares.
Asset Sales - Acquire a group of assets that make up the business (or part of) – continues as going concern.
- Buyer purchases whole business or trading division as a going concern from the company itself.
- Each asset needs to be transferred separately and have part of the purchase price apportioned to it:
o TR1 for property
o IP licence for IP
o Novation or assignment of all contracts
o Employees automatically transfer under TUPE
o Debtors
- Ownership stays with original SH but business changes hands, selling company left as a cash shell – no
assets other than cash proceeds of sale.
- Selling company keeps creditors, liabilities and existing litigation and will acquire consideration
Acquiring a partnership or sole trader
- Asset Sale – Buy all and continue trading under old name (can change later), or
- Buy individual assets – business not sold as going concern.
Parties
Asset Sale - Buyer / Purchaser: Purchasing company, partnership or sole trader and Seller / Vendor: Selling
company, partnership or sole trader.
Company will need to declare a dividend or be wound up to pass consideration to SH.
Share Sale - Buyer / Purchaser: Purchasing company, partnership or individual and Seller / Vendor: Selling
shareholder (could be individual, company or partnership).
Consideration will go straight to SH so no need for dividend or winding up.
Documents required
- Mutual NDA: Continues indefinitely even if transaction does not go ahead.
- Heads of Agreement: Key commercials and structure, not legally binding. Often key part of
negotiation as proceed straight to contract. Will include binding exclusivity clause – not approach
others, means parties comfortable to incur DD costs.
Valuing a Company
If listed then share price will be quoted on a stock exchange so can place market value, but may not be
representative of value if well managed and not available if not listed, therefore use -
- Book Value: Balance sheet value, may not be true reflection or break-up value, value if all assets sold and
all liabilities paid.
- Going Concern: Worth more as a money generating business than broken up and sold, depends on how
well performing and future prospects.
- Future cash flows: Investors buying a company expect future return, so use present value and profits and
multiply by a number of years, not including increase in value of the company when it is sold.
Acquiring the Business of a Company
A company limited by shares is owned by SH with shares that can be transferred – 2 ways to acquire:
Share Sales - Acquire all the shares in the company.
- Buyer purchases issued share capital of a company from SHs – transfer using stock transfer form.
- Can purchase some so not wholly owned, but usually buy all to avoid issue of minority SHs.
- Target company continues to operate as before but with a new owner.
- Original SH receives consideration for their shares.
Asset Sales - Acquire a group of assets that make up the business (or part of) – continues as going concern.
- Buyer purchases whole business or trading division as a going concern from the company itself.
- Each asset needs to be transferred separately and have part of the purchase price apportioned to it:
o TR1 for property
o IP licence for IP
o Novation or assignment of all contracts
o Employees automatically transfer under TUPE
o Debtors
- Ownership stays with original SH but business changes hands, selling company left as a cash shell – no
assets other than cash proceeds of sale.
- Selling company keeps creditors, liabilities and existing litigation and will acquire consideration
Acquiring a partnership or sole trader
- Asset Sale – Buy all and continue trading under old name (can change later), or
- Buy individual assets – business not sold as going concern.
Parties
Asset Sale - Buyer / Purchaser: Purchasing company, partnership or sole trader and Seller / Vendor: Selling
company, partnership or sole trader.
Company will need to declare a dividend or be wound up to pass consideration to SH.
Share Sale - Buyer / Purchaser: Purchasing company, partnership or individual and Seller / Vendor: Selling
shareholder (could be individual, company or partnership).
Consideration will go straight to SH so no need for dividend or winding up.
Documents required
- Mutual NDA: Continues indefinitely even if transaction does not go ahead.
- Heads of Agreement: Key commercials and structure, not legally binding. Often key part of
negotiation as proceed straight to contract. Will include binding exclusivity clause – not approach
others, means parties comfortable to incur DD costs.
