Marxman Advocaten has a team of specialists in the field of M&A. Berthe Schellinger, Pieter Verloop and Dennis Kok deal with this practice on a daily basis. As they like to share their knowledge, a blog on this topic appears regularly on our website. Last time, we discussed the shareholders' agreement. This week the provisional last blog in this series.
This final blog of the M&A blog series focuses on the steps of an acquisition. What is your (legal) route from interest to purchase of a company? In five steps, we take you through this process.
After a buyer has shown serious interest, the (sales) process usually starts with the signing of a non-disclosure agreement. After all, the seller does not want to share its business information without question. The content can be negotiated between the parties; this will determine, among other things, which information falls under confidentiality and with which advisers information may be shared. In the confidentiality agreement, the parties agree that everything discussed and information given during the sales/purchase process remains between them.
After the non-disclosure agreement is signed, parties often draft a letter of intent (LOI). The name of this document varies; it is also called a letter of intent, term sheet or heads of terms. In the LOI, parties agree on the basis for further negotiations and final documents to be drawn up. Important matters include what conditions apply and when the parties may stop negotiations. Agreements on due diligence and timelines are also often included. Thus, the LOI regulates the parties' 'intention'. It sets frameworks for the continuation of the (sales) process. Parties are free to deviate from the LOI jointly in subsequent agreements, but the LOI will in principle remain the starting point. That makes this document more important than is often thought.
Once the LOI has also been signed, the buyer will wish to proceed with a ‘due diligence’ investigation. With the assistance of (usually) legal, tax and economic specialists, this investigation provides insight into the position of the company to be acquired. Potential risks are identified. This enables a decision to be made as to whether or not to proceed with the acquisition of the company. Known risks include ‘change of control’ clauses in contracts, which allow suppliers or customers to terminate their contracts following a takeover. However, ongoing legal proceedings, incorrect decision-making, unauthorised dividend payments or certain clauses in employment contracts must also be scrutinised.
The findings of the due diligence investigation may influence the final purchase price and the warranties and indemnities to be agreed.
Once the due diligence has been completed, the parties enter into negotiations with each other on the content of the purchase agreement. The results of the due diligence will influence the provisions to be included. Negotiations will take place on the inclusion of provisions regarding the allocation of the (financial) risk of uncertain events. If the due diligence reveals that claims from the tax authorities or a supplier are to be expected, specific indemnities and/or warranties may be required by the buyer from the seller in this respect. Adjustment of the purchase price may also be an option in such a case. Usually, the acquisition of a company is done through a share transaction. An asset/liability transaction can also be chosen, where (part of) the assets and liabilities are taken by the buyer.
Once the parties have agreed on the terms under which the transaction will take place (such as the date, method of transfer, and so on), they sign the SPA or APA (‘signing’). Sometimes the ‘signing’ is separated from the final legal transfer of ownership. This may be, for example, to give the buyer time to secure the necessary financing or to fulfil other (suspensive) conditions.
Once all documents are ready and all conditions have been met, ‘closing’ takes place. This involves the actual signing of all documents and, in the case of a share transfer, the transfer of the shares at the solicitor’s office upon payment of the purchase price.
Taking over a company has many facets. It is important to get sound advice at each step of the process. Marxman Advocaten's M&A specialists are experts in the field of takeovers and will be happy to help you!
The blogs in this series are written by our M&A specialists: Berthe Schellinger, Pieter Verloop and Dennis Kok. Do you have any questions? If so, feel free to get in touch!