3. SPA Flashcards
(28 cards)
usual parties to the agreement
buyer and seller
when will the SPA be dated
when parties execute agreement
conditions precedent
SPA is entered into on the basis that it will be completed when certain conditions are fulfilled
what will the SPA stipulate re consideration
the agreed price, form it will take, timing of payment
on an asset sale the amount of consideration attributable to each separate asset will be specified in the agreement
purchase price can be fixed or subject to adjustment (eg as a result of preparation of completion accounts)
reason for completion account
parties may have based their valuation of the target on dated info, but target may experience significant fluctuations in its net assets -> adjustment of purchase price to reflect actual net assets or earnings of target
who controls completion a/c
seller’s accountant
what should SPA guard against re the completion a/c
that contractual provisions are drafted carefully so as to prevent double recovert- e.g a reduction in net assets is not a breach of warranty
what are some typical provisions on a completion account?
the completion accounts to be drawn up within a specified period after completion (eg 30 business days)
the buyer and its accountant has the right to review the completion accounts within a specified time period
in the absence of agreement as to accounts, limited period during which parties will attempt to resolve any disputes
in the case of continued disputes, matter to be referred to an independent firm of accountants
what is a locked box agreement
parties agree a price for the target co which is fixed before sale and purchase agreement is signed
buyer receives economic interest in target from locked box date (benefit of cash profits generated from that date)
what is earn out
a term describing an arrangement whereby at least part of the consideration is determined by reference to future profitability of the target for a specified period after consideration
when is an earn out appropriate
where sellers continue to manage the co after completion
how are payments made in an earn out
part of purchase price is paid at completion, followed by further payments/series of payments depending on the profits made by target within specified period
how will payment be made on an acquisition
either by way of fixed amount paid in cash on completion date / deferred consideration / payment in lieu of shares or debenture by seller
what is deferred consideration
where seller is prepared to allow part of purchase price to remain outstanding on completion / payment in instalments with interest on outstanding
why might a buyer insist on retention of part of purchase price
as security in case a warranty claim arises in relation to the target- where parties are aware of a potential liability
general rule re tax on a deferred consideration
seller charged to tax at the sale date on total amount of consideration irrespective of whether it has been received
tax rule where tax cant be ascertained due to dependency on future events
Marren v Ingles rule- tax charged on disposal of 2 separated capital assets
when is SDLT payable
within 30 days of purchase date
what if amount of deferred consideration has not yet been determined , but is ascertainable at completion
wait and see principle
SDLT charged once consideration is fully determined
what might the seller seek for outstanding sums
security
how might a seller seek security on outstanding sums
charge over some or all assets transferred to buyer
requiring guarantee of buyers obligation to pay balance of the price from individual shareholders, directors, or parent company of a corporate buyer
providing that title is to remain with seller until price has been paid
obliging buyer to place specified sum in joint deposit account on completion and defining circumstances in which this can be released to parties
most common form of consideration
cash
how can buyer satisfy consideration (other than in cash)
equity securities or debt securities or vendor placing
what is vendor placing
acquiring co issues shares to seller but arranges for the shares to be sold on immediately to institutional investors
