Share sale - answer✔BUYER ACQUIRES SHARES IN TARGET
buyer will acquire target with all its assets and liabilities
Asset sale - answer✔buyer buys a business as a going concern. All the individual assets of the
business concerned will be transferred to the buyer together with the goodwill of the business.
liabilities will be left behind with seller
Hive Down - answer✔a transfer of assets 'down' to a
subsidiary.
Hive up - answer✔A hive up will be a transfer of assets from subsidiary company 'up' to a
parent holding company.
One method for agreeing the price to be paid for the target is on a 'debt free/cash free' basis. -
answer✔the consideration is set on the assumption that there is no cash or debt in the target
company and, therefore, the parties will need to know how much cash and debt is actually in
the target.
Net asset value ('NAV') - answer✔The buyer may also base the purchase price on the NAV of
the target company taken from the last set of audited accounts.
Completion accounts - answer✔the parties may agree to prepare accounts which show the
financial position of the target up to and at the date of completion. Such accounts can only be
prepared after completion and the parties will agree a date after completion by which they
must be prepared.
After the completion accounts have been agreed, the
purchase price will be adjusted, if necessary, to take into account:
(a) any cash or debt which the completion accounts show was left in the target company at the
completion date
or
(b) the difference to the original NAV figure the purchase price was based on
as alternative to completion accounts to
adjust the purchase price, a 'locked box' mechanism - answer✔Instead of setting the purchase
price by reference to completion accounts (which as noted above are drawn up some time after
completion and could potentially be the subject of dispute), the parties may agree to use
accounts
that have been previously drawn up (i.e. the 'locked box accounts').
= benefit of certainty as price can be finalised before completion
Methods of payment - answer✔1)cash- good for certainty
2) earn-out
3) paper- issuing shares (share for share exchange) and/or loan notes (IOU + interest)
Methods of payment: Earn Out - answer✔only part of the consideration is paid on the date of
completion, but the buyer agrees to pay additional amount of consideration at a particular time
in future
Retention accounts
A buyer may be concerned that, in the event of a successful claim for breach of warranty or
indemnity, the seller may not have the funds available to meet
the claim. To address this concern, the buyer may ask for a retention account. - answer✔This is
where the buyer and the seller agree that a certain amount ofthe consideration monies will be
placed in a joint account (usually operated by both parties' solicitors acting together). Such
monies will be available to the
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