Deal Issues

Question 1

What could the buyer’s approach be to multiple sellers?

Answer 1

Starting position - insist on joint and several liability.

Could concede to accept an escrow.

Question 2

What could the seller’s approach be to multiple sellers?

Answer 2

Each seller’s liability to be limited to the amount of the purchase price they actually receive.

Effectively makes the sellers’ liability several and subject to a maximum amount for each seller.

Question 3

What are options for addressing lack of substance / lack of credit worthiness / getting security for claims against the seller?

Answer 3

1 - parent company guarantee / guarantee from an entity of substance

2 - W&I insurance

3 - escrow

4 - retention of a proportion of the purchase price

5 - bank guarantee

-> or negotiate a reduction in the purchase price (where buyer is aware of a specific liability in target)

Question 4

What should you consider in relation to the identity of parties to the SPA?

Answer 4

1 - substance

2 - nature

• > if corporate, guarantee

ownership structure —> is entity a subsidiary of a more substantial entity or owned by one or more individuals that could give a guarantee

• > if individual, escrow arrangement

3 - if non-UK - process agent in the UK (or provide an address for service in the UK) and possibly depending on the circumstances, a legal opinion

4 - if multiple - escrow arrangement

5 - if likely/able to give warranties

Question 5

What are the implications if the purchase price in the SPA could be a maximum amount / is calculated by reference to a formula (eg an earn-out) but subject to a maximum amount?

Answer 5

Stamp duty will usually be payable on the maximum amount.

Unless the maximum amount is unascertainable at SPA signing

If a transaction involves an earn-out or deferred consideration, get tax input, as it may be possible to structure the statement of the consideration so as to save stamp duty.

Question 6

What does joint and several liability mean?

Answer 6

• enables the buyer to sue
  1) any 1 of the sellers for the whole amount of its claim, or
  2) all of the sellers together

There’s one obligation which if discharged by one of the sellers, discharges the obligation of the other sellers to perform that same obligation.

Checked

Question 7

What are options for addressing lack of substance / lack of credit worthiness of the buyer?

Answer 7

1 - parent company guarantee / guarantee from an entity of substance

2 - ECL (if PE buyer)

EG - buyer is an SPV without substance

Question 8

What should you not forget in relation to guarantees and indemnities?

Answer 8

The credit worthiness of the person giving them.

Question 9

When should the buyer consider requesting an escrow arrangement?

Answer 9

1 - lack of substance / credit worthiness of seller
2 - trustee seller [?]
3 - multiple sellers
4 - sellers are individuals
5 - potentially as security in respect of breach of a particular warranty (eg warranted net assets / environmental or pension risks - especially where the risk is still unclear)

Question 10

Completion of other transactions

Answer 10

If the SPA transaction needs to complete at the same time as another transaction, consider including a CP re simultaneous completion.

Question 11

What would the seller’s key concerns in relation to the SPA typically be?

Answer 11

1 - deal certainty
—> ideally no CPs
—> if CPs, only mandatory and suspensory antitrust or regulatory approvals

2 - price certainty
—> that it will receive all of the funds when it expect to receive them (no price chips or payment delay)
—> clear pricing (ideally not complex)
—> certainty of buyer funds

3 - clean break
—> minimise residual liability

Question 12

What approach should a seller typically take to conditions in an SPA?

Answer 12

Only mandatory and suspensory antitrust or regulatory conditions.

• break fee
• HoHW
• could potentially require buyer to pay seller’s costs if it fails to use reasonable efforts to satisfy the conditions
• could mandate the actions buyer must take to satisfy conditions / submit applications

Question 13

What should a buyer typically ask for if it has an obligation to pay deferred consideration?

Answer 13

A contractual set-off right - especially where it will / may need to pay deferred consideration to the seller

Question 14

What would the buyer’s key concerns in relation to the SPA typically be?

Answer 14

1 - walk away right
2 - will want much more to be included in the SPA - eg further assurance and non-competes