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Share Purchase Agreement
Transcript of Share Purchase Agreement
A step-by-step analysis
Signing - Completion
Share sale vs. Asset sale
PE buyer vs. Corporate buyer
continuity of contracts
ease of transfer of title
change of control approvals
cherry picking of assets
do not inherit unwanted liabilities
transfer of assets, contracts, approvals
Private Equity Buyer:
Short time-horizon: exit
commitment of management
strong negotiating position
longer time horizon
Common law vs Civil Law
statutory terms / protections
contractual terms / protections - extensive use of warranties and disclosures
Receive shares free from encumbrances
Know more about the Target
Shift risks to Sellers
Control over Target
Get the highest price
Security for purchase price
Objectives of the parties
Ideal to sign and complete instantly.
Gap raises issues & risks;
Fixed Price - Locked Box.
Purchase Price Adjustment - Completion Accounts.
Conditions Precedent -Long Stop Clause/ Termination.
Material Advance Change (MAC) & break fees clause.
N/A to SPA- Clause 1.1
Completion- Clause 5 & Sch. 4
Addressing adverse selection?
Addressing moral hazard?
Calculation (part II)
Philip Abrahams - Alessandra Camilleri - Bridget Nambooze - Sanja Voloder - Shinasa Wasimi - Willem Witters
Common law is like the ant - gathering and using for incremental improvement;
Civil law is like the spider - spinning webs out of its own substance
- From speech of Lord Neuberger 12 Feb 2014
What is adverse selection?
How to deal with it?
Warranties and Indemnities
Clause 11 restrictions on Buyer
Until end of earn-out, Buyer:
will not compete with business of Group in UK
will not conduct similar business in UK
will continue to seek/obtain/accept/service orders from "existing customers"
agreement: 10% EBIT added
no agreement: non-compete expert
Management restrictions on the Sellers
certain matters cannot be implemented without board approval
commit, borrow, lend, (dis)invest, aid, waive above certain sum
acquire or dispose of assets
modify agreements with sellers
Earn-out restrictions on the Sellers
protection of workforce
duration: 3 years
geo: UK, France, Belgium, Spain
scope: business of Group companies
non-compete/ non-solicitation/ non-dealing/ protection of workforce:
duration: 2 years after end of employment
scope: business of Target group
protection of reputation
Promise as to a particular state of affairs
Statement of fact or law
Compensation for a particular loss
- Liability thresholds
3.1 The Sellers will not be liable ... unless:
(a) the Buyer has served a written notice ... on or before the
third anniversary of the Completion Date
(b) the Buyer has properly issued and served proceedings ... within
of serving the written notice
3.3 Where notice has been given ... in accordance with paragraph 3.1, that claim shall be deemed to have irrevocably withdrawn and lapsed unless:
(a) proceedings ... have been issued and served ... not later than ...
after the date of that notice ...
1. Maximum Total Liability
The total amount of the Sellers' liability in respect of all Claims ... is limited to
2.1 The Sellers will not be liable ... unless its total liability ... would ... exceed
2.2 The Sellers will not be liable in respect of a Claim unless the total liability of the Sellers in respect of all Claims ... (excluding any Claim for which the Sellers are not liable because of paragraph 2.1) would ...
, in which case
the whole amount
(and not just the amount by which the limit ... is exceeded)
will be recoverable
Clause 6. Warranties
6.4 The Warranties are
each matter that is Disclosed in the
No other information of which the Buyer may have constructive knowledge ... prevents or limits a Claim
but ... the Buyer will be deemed to have the knowledge of its professional advisers ... which will limit a Claim.
6.5 Where a Warranty is qualified by the expression 'so far as the sellers are aware' ... each Seller is deemed to have knowledge of:
... of the senior management ...;
(b) anything of which a Seller ...
ought reasonably to have knowledge
... taking into account his particular position ...;
(c) the knowledge that a person referred to in clause 6.5(b) would have had, had the person made all reasonable enquiries of each other Seller.
The Sellers acknowledge that the Buyer is entering into this agreement in reliance on each Warranty.
The Transaction Documents together set out the
between the parties ...
Each party agrees and acknowledges that it has
not relied on or been induced to
enter into a Transaction Document by a warranty, statement, representation or undertaking ... which is not expressly included in the Transaction Document. ...
Neither party has any claim or remedy in respect of
a warranty, statement, misrepresentation ... or undertaking ... which is not expressly included in a Transaction Document ...
[Each] party agrees that its
only liability or remedy
arising out of or in respect of any warranty, statement, misrepresentation (whether negligent or innocent) or undertaking set out in this agreement
will be in damages for breach of contract
Will the other other party perform up to expectations?
Buyer worried: Sellers' short-terminism
Sellers worried: Buyer's "management" of Target's profitability
Monitoring and information sharing
Incentives for desirable behaviour
Reliance on reputation
What is Moral Hazard ?
How to address Moral Hazard ?
VPP1 = [6x (2012 EBIT + 2011 EBIT)]/2 - [EV]
VPP2 = [6x (2013 EBIT + 2012 EBIT + 2011 EBIT)]/3 - [EV + VPP1]
VPP3 = [6x (2014 EBIT + 2013 EBIT + 2012 EBIT + 2011 EBIT)]/4 - [EV + VPP1 + VPP2]