A more recent version of these Early Stages Share Sale notes – written by Cambridge And Oxilp And College Of Law students – is available here.
The following is a more accessble plain text extract of the PDF sample above, taken from our Private Acquisitions Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:
Share sale only asset changing hands are shares in co B acquires T w/all its assets and liabilities to outside world nothing has changed
Cons is exchanged for shares in T
Asset sale all individuals assets transferred - B can cherry pick which B can carry on business in succession to S As part of acq, B automatically assumes some liabilities (eg TUPE) however can cherrypick and most liabilities remain w/S Cons is exchanged for assets of T
Stages of a transaction in overview Concerns: Buyer Seller knowing T is: (a) obtains best possible price for T; but (a) a worthwhile acq (b) that commercial integrity of T is not (b) that it is worth consideration being paid compromised as a result of aborted sale knowing S is: (c) seriously committed to selling T price B wants to pay (d) not currently engaged in negotiations w/1 or more potential Bs as process is v spenny
2 x types of sale considered on PA: Private Treaty Sale 'PTS' - where S negotiates w/one B Auction Sale 'AS' - where S negotiates w/several competing Bs How does the S go about meeting B's concerns on a sale?
Private Treaty Sale
- heads of agreement
- exclusivity/lock-out agreement = agreement that for a certain period of time S won't speak to any other Bs
- process letters
- indicative bids (equivalent of heads of ag)
- confidentiality agreements
Preliminary stages: meeting concerns, break fees [if applicable], DD [legal, financial and commercial]
Ads for S
S usually reach more Bs thr/AS competitive tendering can increase prices process enables S to obtain better sale terms than on PTS S can use data room to control amount of docs disclosed and limited investigation permitted ot Ss
- S has opportunity to control timetable, esp to reduce time it takes to proceed from agreement in principle to completion
- a well market auction can enable d'ors to demonstrate to s'ers and c'ors that they have obtained best price for T- not all business are suitable for sale by auction
Disads for S - an auction may also be inapprope where the structure of buiness is particularly complicated or where there are significant external factors
- the cost to S is usually higher than on a PTS
- the knowledge that a T is for sale can interrupt the normal course of business
- Management ('M') may need to spend more time on sale than business potentially damaging
- process of negotiating w/more than 1 bidder imposes additional stresses on S and M of T
- some bidders may not be serious and are only interested in finding out info re a competitor
- if auction does not result in a sale, the failure is public and T is soiled goods
Disads for B Ads for B
it may well be forced to pay a higher purchase price its chances of success are lower than w/a PTS the level of contractual protection is lower than w/a PTS S can choose what info to release may not reach auction floor (aka minimum price acceptable) likely to receive less info re T greater risk fo damage being caused to T's business before sale B has less defences than in a PTS against costs
- some DD done for you
- can obtain views from other bidders of true MV
- you know if you're preferred bidder
- all potential bidders in auc required to sign
- ag's will be drafted ito state that they are for benefit of future owners of T as well as current owner (aka S)
- set out procedures and timings for AS
- will also contain information memorandum [see below]
- contains info about T to give bidders a basis on which to make an indicative bid for T nb. no similar letter or doc on PTS
Evaluating bids Comparing indicative bids on an AS
Nb. if you see a plc assume it's listed unless the q tells you otherwise Categories to consider Who are likely Bs?
what is B offering to buy?
Amount Form of cons?
how will purchase be funded?
Any other issues?
Points to consider
- affected by competition
- market share?
- approvals required: s'er, investment approval, consultation w/
e'ees or e'ee representatives, operations (B's concerns re ability of T to operate after sale), structure (individual Bs prepare a different sale structure to one proposed by S) Asset/share sale?
consider effect of form of cons too See also table below - generally cash preferable
- consider types of cons
- Does the co already have financing in place ie. have enough DP
- Or is debt finance already in place? Nb. if listed a co can basically issue shares in itself to generate cash - however time/cost implications of this.
- Will class tests because it's a listed co delay completion?
- Does the co have conditions on NAV completion? How quickly can deal be put thr/? [6 wks is pretty quick]
- If paying in LNs, when are these redeemable/how soon can S get money? [Usually 18 months to show HMRC LNs are bona fide and commercial]
- Deal subject to any DD?
- is any part of deal B's discretion?
Basic differences between AS and PTS Outline of PTS sale: Seller take instructions
Buyer take instructions Agree Heads of Agreement Confidentiality Agreement Lock-out agreement
Respond to DDQ
Review draft AA. Advise client.
DD Questionnaire ('DDQ') to S's solicitor Analyse response to DDQ. Advise client Draft Acq Agreement ('AA')
Seller Mark up draft AA to include Vendor Protections Prepare draft Disc Letter ('DL')
Buyer Review marked up AA. Advise client. Review DL. Advise client. Negotiate and agree AA and DL Exchange contracts Obtain consents/fulfill any conds COMPLETE
Outline of AS S instruct solicitors identify prospective Bs consider preliminary issues S conducts extensive preparation, invariably using a fin advisor or investment bank
B instruct solicitors
Confidentiality Agreement prepared by S and signed by B Prepares info memorandum and process letter for prospective Bs and prepares online Data Room Bs review info memo and prepare indicative bids 1st round of indicative bidding Prepare Data Room Review indicative bids (including forms of consideration and tax issues) Draft Acq Aq Review marked up AA select bids to go forward
Negotiations w/1 or more B leading to ... Select preferred B Prepare Draft Disc Letter
Selected bidders visit Data Room
Review and mark-up draft AA Site visits 2nd round of bidding from limited number of Bs, usually accompanied by responses to sale docs
Review draft DL
Buy the full version of these notes or essay plans and more in our Private Acquisitions Notes.