Private Acquisition Consolidation
Introduction
Share sale vs Asset sale
Share Sale Asset Sale
Seller Shareholders that owns shares Company that owns assets
Consideration …goes directly to shareholders Need to be extracted by shareholders by
dividend or liquidation of the company
Subsidiaries Remain with Target Depends on Acquisition Agreement, buyer
can cherry pick whether they want the
subsidiaries or not.
Litigation Remains with Target (reduces value) Most likely left behind, as it is a liability
Employees Remains with Target Transferred under TUPE
Property Remains with Target Depends on Acquisition Agreement
Share sale
Share sale advantages Share sale disadvantages
Seller Clean break None, but note that buyer may negotiate
Consideration goes straight to certain warranties and indemnities: not a
selling shareholders true clean break
Tax advantages
Buyer Business continuity Acquires all liabilities
Less negotiation about specific More due diligence, and more
assets to be purchased negotiations about warranties and
No need for third party consents indemnities
Asset sale
Asset sale advantages Asset sale disadvantages
Seller Suit seller that only wants to sell No clean break
part of a business Consideration goes to selling
company, passed to shareholders by
dividend/winding-up
Buyer Cherry picking Lack of business continuity
Liabilities may remain with seller Greater complexity for separate asset
Tax advantages transfers
Requirement of third party consents
Auction sale vs private treaty sale -àif fails to complete = break fees
Auction sale Private treaty sale
Definition Seller negotiate with multiple Seller negotiates with just one buyer
potential bidders
Documents Confidentiality agreement (should Confidentiality agreement (often
also ensure that it has the right to called a NDA (non-disclosure
assign the benefit of the obligation agreement)) à should be signed
to the new owner of Target) before the HOT and legally binding.
Information memorandum and Heads of terms (mostly non-binding)
process letter Exclusivity agreement
Indicative bids
Exclusivity agreement with
preferred bidder (might be
executed once the seller has
selected a preferred bidder)
Due Diligence Under seller’s control: Under buyer’s control:
Limited information in IM;
, Only selected bidders access data Buyer sends DDQ and seller responds
room with due diligence report
Due diligence report:
Full form report (i.e. setting out
comprehensive information about
all aspects of Target and its
business) together with an
executive summary
Exception only report (i.e.
focussing only on issues which are
material and problematic)
Acquisition Under seller’s control: seller prepares Under buyer’s control: buyer prepares first
agreement first draft draft
Disclosure Seller prepares first draft Seller prepares first draft
Letter
Auction sale
Auction sale advantages Auction sale disadvantages
Seller • Bidders will be competing against not suitable for complex structures
one another so this may push the Risk of release of confidential
sale price higher information to competitors
Access to more potential buyers additional preparation, costs and time
Seller’s control of DD process and (and risk of reputational damage if
sale terms (first draft of AA) process fails)
Opportunity to control the risk that knowledge of sale will
timetable damage relationship with customers
The Seller can control the release and suppliers
of sensitive information to bidders there will be additional fees for the
via the data room. Seller e.g. additional professional
The Seller may be in a better fees for: the Seller’s financial advisor;
position to show shareholders it and Seller’s lawyers as lawyers have
has sold the target for the highest to negotiate with several bidders and
possible price via an auction sale prepare the first draft of the AA.
structure Risk that proposed auction sale will
fail and the Seller will not be able to
sell the target in the future.
Buyer lower price if few bidders the successful bidder may end up
unscrupulous bidders can fish having to pay a higher price for the
seller does preliminary work target as a result of the competitive
tendering process.
no guarantee of success: wasted
costs, seller will resist exclusivity
agreement
lack of control over DD process and
less contractual protection (seller’s
first draft of AA)
harder to negotiate favourable terms
this is a risk of confidential
information being released to
unscrupulous competitor which may
reduce the value of the target in the
successful bidder’s hands
Procedure in auction sale
Introduction
Share sale vs Asset sale
Share Sale Asset Sale
Seller Shareholders that owns shares Company that owns assets
Consideration …goes directly to shareholders Need to be extracted by shareholders by
dividend or liquidation of the company
Subsidiaries Remain with Target Depends on Acquisition Agreement, buyer
can cherry pick whether they want the
subsidiaries or not.
Litigation Remains with Target (reduces value) Most likely left behind, as it is a liability
Employees Remains with Target Transferred under TUPE
Property Remains with Target Depends on Acquisition Agreement
Share sale
Share sale advantages Share sale disadvantages
Seller Clean break None, but note that buyer may negotiate
Consideration goes straight to certain warranties and indemnities: not a
selling shareholders true clean break
Tax advantages
Buyer Business continuity Acquires all liabilities
Less negotiation about specific More due diligence, and more
assets to be purchased negotiations about warranties and
No need for third party consents indemnities
Asset sale
Asset sale advantages Asset sale disadvantages
Seller Suit seller that only wants to sell No clean break
part of a business Consideration goes to selling
company, passed to shareholders by
dividend/winding-up
Buyer Cherry picking Lack of business continuity
Liabilities may remain with seller Greater complexity for separate asset
Tax advantages transfers
Requirement of third party consents
Auction sale vs private treaty sale -àif fails to complete = break fees
Auction sale Private treaty sale
Definition Seller negotiate with multiple Seller negotiates with just one buyer
potential bidders
Documents Confidentiality agreement (should Confidentiality agreement (often
also ensure that it has the right to called a NDA (non-disclosure
assign the benefit of the obligation agreement)) à should be signed
to the new owner of Target) before the HOT and legally binding.
Information memorandum and Heads of terms (mostly non-binding)
process letter Exclusivity agreement
Indicative bids
Exclusivity agreement with
preferred bidder (might be
executed once the seller has
selected a preferred bidder)
Due Diligence Under seller’s control: Under buyer’s control:
Limited information in IM;
, Only selected bidders access data Buyer sends DDQ and seller responds
room with due diligence report
Due diligence report:
Full form report (i.e. setting out
comprehensive information about
all aspects of Target and its
business) together with an
executive summary
Exception only report (i.e.
focussing only on issues which are
material and problematic)
Acquisition Under seller’s control: seller prepares Under buyer’s control: buyer prepares first
agreement first draft draft
Disclosure Seller prepares first draft Seller prepares first draft
Letter
Auction sale
Auction sale advantages Auction sale disadvantages
Seller • Bidders will be competing against not suitable for complex structures
one another so this may push the Risk of release of confidential
sale price higher information to competitors
Access to more potential buyers additional preparation, costs and time
Seller’s control of DD process and (and risk of reputational damage if
sale terms (first draft of AA) process fails)
Opportunity to control the risk that knowledge of sale will
timetable damage relationship with customers
The Seller can control the release and suppliers
of sensitive information to bidders there will be additional fees for the
via the data room. Seller e.g. additional professional
The Seller may be in a better fees for: the Seller’s financial advisor;
position to show shareholders it and Seller’s lawyers as lawyers have
has sold the target for the highest to negotiate with several bidders and
possible price via an auction sale prepare the first draft of the AA.
structure Risk that proposed auction sale will
fail and the Seller will not be able to
sell the target in the future.
Buyer lower price if few bidders the successful bidder may end up
unscrupulous bidders can fish having to pay a higher price for the
seller does preliminary work target as a result of the competitive
tendering process.
no guarantee of success: wasted
costs, seller will resist exclusivity
agreement
lack of control over DD process and
less contractual protection (seller’s
first draft of AA)
harder to negotiate favourable terms
this is a risk of confidential
information being released to
unscrupulous competitor which may
reduce the value of the target in the
successful bidder’s hands
Procedure in auction sale
