SHARE SALE
Only asset changing hands is shares of target co
Buyer acquires with all assets and liabilities
So far as outside world is concerned, nothing changes
Extensive due diligence (DD) carried out on liabilities
o Liabilities generally left behind in asset sale
shares
Seller Buyer
£
entirety
Target transfers
ASSET SALE
Buys business as a going concern – all assets transferred + goodwill of co.
Buyer carries on business in succession to seller
Will automatically assume some liabilities e.g. employees under TUPE
Structure of transaction likely influenced by relative bargaining power of the parties
HIVE DOWN
Combo of asset and share sale – seller transfers a business into another co. it owns and
then sell this to buyer
o Used when ultimate sale to buyer needs to be structured as a share sale but
business currently operated within a single company
o Set up new subsidiary and transfer the division buyer wants to purchase into this
o Could be b/c there is a liability the buyer wants to leave behind with the seller
shares
Seller Buyer
café div £
restaurant div Entirety
transfers
New Co
Café div
HIVE UP
Transfer of subsidiary’s asset up to parent company allowing transfer of package of assets
CONSIDERATION
, How is the business valued?
What form will it take?
When will it be paid?
Ultimately, seller’s main concern is how much they will receive for the sale
Purchase price usually paid @ completion but can be delayed– delayed consideration
DEBT FREE/CASH FREE
Consideration set on the assumption there is no cash or debt in the target
o parties will need to know how much cash/debt there is
NET ASSET VALUE (NAV)
Buyer bases value of target on the last set of audited accounts
NAV on date of completion may have changed since last set of accounts
o Parties will often agree that the figure will be adjusted after completion
o This will reflect any material change based on the completion accounts
o Introduces a degree of uncertainty in the transaction about the final sum due
NAV as at date of Completion completion accounts
Last audited accounts Date submitted
Any change?
Adjust up or down
COMPLETION ACCOUNTS
In debt/cash free and NAV situations, parties may agree to prepare accounts up to and at
the date of completion.
Can only be prepped after completion – parties agree date for this
Will take into account:
a) any cash/debt which completion accounts show was left in target at completion
b) difference between original NAV purchase price based on and position today
If adjustment needed, common to agree max amount of consideration that buyer will have
to pay (increase) / that seller may have to refund (decrease)
LOCKED BOX MECHANISM
Alternative to using completion account adjustments
Parties agree to use accounts previously drawn up = certainty + finality before completion
o Added benefit of not incurring additional costs and reduces delay in prepping
accounts
Seller will usually agree to indemnify buyer for any monies taken out of the target outside
the ordinary course of business – reduces buyer disadvantage by relying on old accounts
o E.g. dividends paid to seller before completion (i.e. leakage from locked box)
o Risk of general downturn of the target is on the buyer
o Most commonly used where seller is in a stronger bargaining position
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