Part 2:
• Negotiating the Transaction
The Deal Team
– Should comprise at a minimum:
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Corporate Finance lead;
M&A Legal lead;
Commercial/Business Lead;
Integration Lead from the business;
Tax lead
Finance lead
– Other specialists/subject matter experts:
• Competition, HR legal & HR business, to be called upon
as required (potentially on a “no target name” basis if the
deal is particularly confidential)
Kick off Meeting
• The Corporate Finance & M&A Legal Lead should
schedule a kick off meeting with the deal team.
• Helpful to circulate a contacts sheet with roles and
responsibilities of each deal team member
• During this session the process should be explained
to the deal team (and tailored according to the level
of experience of each member)
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Kick off Meeting
Non-Disclosure Agreement
• Should be negotiated by M&A Legal and Corporate
Finance Lead
• Signed by Corporate Finance lead
• Include requirement for target and their advisers to
keep confidential buyers involvement in transaction
• To the extent buyer is providing information be
drafted 2 way with buyer benefiting from full suite of
protections
• Deal team should be made aware of buyers
confidentiality obligations
Insider List
• M&A Legal lead and Corporate Finance Lead should
consider if an insider list is required
• If so, it should include:
– The deal code name (Project “X”);
– Name of each deal team member, date they
became an insider and why they are an insider;
– Deal team should be made aware of the insider
list and that they should only discuss the deal with
people on the list
– Best practice to circulate a note on confidentiality
to the entire deal team
Insider List
– Where shares of the seller or target are listed on a
recognised stock exchange the M&A Legal Lead
should make the deal team aware of:
• The insider dealing provisions in the Criminal Justice Act
1993 (or equivalent legislation in relevant jurisdiction)
• The civil offence of market abuse under the Financial
Services and Markets Act 2000 (or equivalent legislation
in relevant jurisdiction), which applies to both individuals
and corporates
Engaging Externals
• Whether external lawyers or financial
advisers/consultants are required will depend on the size
and expertise of the buyers internal team
• Some tips for successful engagement are:
– Legal and Corporate Finance to work together to
negotiate and finalise the engagement letters;
– Clear demarcation of the responsibilities of the
advisers to ensure on duplication of effort and/or that
nothing is missed;
– Regular due diligence calls between internal team
and external advisers to flag any material issues;
International Transactions
• Subject to the overriding caveat of confidentiality the
M&A legal lead should work closely at an early stage
with the local legal lead/external adviser to
understand:
– Any impact of the foreign countries laws on the
transaction (i.e. employment laws that make post
acquisition reorganisation prohibitive?)
– Are provisions such as non-compete clauses
enforceable in the relevant jurisdiction?
International Transactions
– Any foreign ownership restrictions that require
approval in the target territory?
– Any obligations to negotiate in good faith/share
confidential information?
– Ensure the Due Diligence questionnaire is capable
of use across jurisdictions
– Remember to consider cultural impact of
“investigations” in target jurisdictions – may be
seen as a sign of mistrust or bad faith
Structuring & Tax
• Consider Share Sale (shares of the target) vs. Asset
Sale (the business/assets of the target)
• Will consideration be wholly cash or will non-cash
consideration such as loan notes/shares be used?
• What are the tax implications of the proposed
structure? Early engagement with your internal
and/or external tax advisers is recommended!
Valuation/Pricing of Target
• Ensuring the price offered/paid for the target reflects
the value of the company/assets is a vital
consideration from the outset
• Corporate Finance will lead on the valuation of the
target
• M&A lead should seek to understand the value
drivers to ensure they are protected in the
transactional documentation and that these can be (if
appropriate) passed on to the external advisers to
focus their advice.
Valuation/Pricing of Target
• M&A Legal lead to ensure that any adverse due
diligence findings are communicated to the Corporate
Finance lead so that they are considered in the
overall valuation
Price Adjustment Mechanism
• Corporate Finance should sign off on any price
adjustment mechanism used (e.g. completion
accounts, locked box)
• Need to review in conjunction with the relevant
provisions in the sale documentation
• Should also consider advice from external legal and
tax advisers (where appropriate)
Warranties
What are warranties?
Contractual statements made by Seller as to the
condition of the affairs of the target company
2 main purposes of the warranties:
• remedy if the statements prove to be incorrect and
the value of the company is thereby reduced.
• To encourage the seller to disclose known problems seller's liability is limited to the extent that proper
disclosure is made against them (disclosure letter
and disclosures)
Warranties
• M&A Legal lead, Corporate Finance, business lead
and integration lead (and specialists) need to work
closely together to ensure the sale agreement
contains adequate warranties to:
– Flush out risk; and
– Provide the buyer with a damages claim if
breached
• Need to ensure seller’s cap on liability and de
minimis caps are set at an appropriate level for the
deal size
Indemnities
• Indemnities should be negotiated to protect the buyer
from for losses arising from identified diligence risks
• Early disclosure should be requested in order to allow
sufficient time for any issues arising from the process
to be addressed
Completion Conditions
• Completion conditions may include any of the
following:
– Competition clearance
– Regulatory clearance
– Third party consents to change control provisions
– Tax clearance
– Restructuring of the target
– Completion of HR requirements
Completion Conditions
• Remember to set out in the sale documentation:
– How the target will be run in the period between
signing and completion;
– Which party bears the financial risk/receives the
financial benefit of that period;
– Whether any particular protection is required by
the purchaser for a breach or warranty or material
adverse change arising during that period;
– What happens if a condition is not fulfilled?
Contractual Protections
• Where appropriate seek to include restrictions in the
sale documentation to preclude the seller from
damaging the newly acquired business such as:
– Non-compete covenants
– Non-solicitation of employees or customers
– No announcements to be made to customers or
employees without agreeing the form with the
buyer