Choosing A Share Acquisition Or Asset Acquisition Notes
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M&A Workshop 1
Choosing a Share Acquisition or Asset Acquisition Share Acquisition
PARTIES: Shareholders + the Buyer The Buyer buys shares in the company that owns the business Ownership of the Target Co (an any subsidiaries wholly owned by targe) is transferred to Buyer Ownership of the business does not change -all assets, liabilities etc. are retained by the Target Co.
PARTIES: Target Co + the Buyer The Buyer acquires ownership of assets (& any agreed liabilities) that make up the business but the Co. itself remains (as an empty shell) After acquisition, the Buyer either continues to run the business using the assets bought, or absorbs it into its own corporate structure.
FACTORS AFFECTING CHOICE OF ACQUISITION FOR SELLER SHARES ASSETS
Clean break from Busines s
TIMING: Simple, sign stock transfer forms to transfer title and hand over share certificates
Scope of warranti es & DD
No further liabilities for the Seller as the Buyer takes them all. However, Buyer will require Seller to provide warranties + indemnities +
guarantors as to the state of Co. & its liabilities. Thus, possible right of comeback for Buyer to remedy undisclosed problems (e.g. to bank for lending). Buyer will want to carry out DD to find out hidden liabilities they may be taking on Negotiate out of all liabilities to get true clean break
NO TUPE as No direct effect on contracts of employment as there is no change of employer. Doesn't create potential claims in and of itself. Any later redundancies or changes to contract terms will be of concern to the Buyer Not the Seller. No direct interest unless warranties given in SPA.
Bigger scope as most contingent tax liabilities transfer to the Buyer.
Legal liability to 3rd parties for debts and obligations of business remains with Seller. 3rd P can continue to take action against Seller. Applies if Buyer has contracted to assume responsibility for certain liabilities. Right of indemnity, but not always concrete. Thus, the Seller will want indemnities from the Buyer, this can be problematic if the Buyer becomes insolvent, or has not accepted liability for certain matters. Better option for Buyers looking to limit their liability
TIMING: Longer and more Onerous: each asset must be transferred in the appropriate form e.g. a deed of conveyance for land, assigning patents and contracts, physical delivery of certain assets. Possibly problematic when 3rd P consents are required, e.g. LL consent to transfer/assign leasehold property.
TUPE applies: rights and obligations owed to each employee are transferred automatically from the Seller to the Buyer.
Seller has no interest in those employment contracts, except insofar as it has given warranties to the Buyer
If TUPE does not apply, the Seller still has obligations.
The application of TUPE could be a DISADVANTAGE: after an acquisition, a business is likely to undergo rationalisation, which will often require redundancies. The Buyer is now liable for payments relating to this and any claims arising out of it.
Smaller scope as most contingent tax liabilities remain with the Seller
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