Riordans Lawyers have been acting for buyers and sellers in mid-market acquisitions for many years. Set out below are some helpful tips and thinking points for intending buyers.
Don’t sign anything until you get advice
This may be stating the obvious, but it needs to be said.
Depending on its terms, a simple one-page “Terms Sheet” or similar document can be a legally-binding agreement.
If so, signing such a document on a multi-million dollar deal without advice can open a portal to a place of litigation and pain.
Get advice early
Having made the decision to make an acquisition, the Board of the Buyer should be prepared to commit funds to the project and to obtain immediate expert advice on what will be required.
The costs of a deal falling through or the investment not justifying the purchase price will far outweigh the costs of obtaining good legal and accounting advice from the outset.
Establish a team
The input of the legal, accounting and other advisers (e.g. valuers) into the processes of due diligence, price calculation, contract negotiation and deal completion are all essential components in the acquisition process.
Those advisers each have their own role to play in each of those processes. Those roles should be complimentary with each other and with you as the client/buyer.
A Buyer needs to be satisfied from the outset that the firms which it has chosen can work effectively and co-operatively with its personnel and with each other as a team throughout the entire process.
Before initiating or responding to an offer, some pre-planning is necessary.
There are only a limited number of enquiries one can make without engaging the intended target and seeking information directly.
Depending on the size of the acquisition (or, more particularly, the size and make-up of the market in which the Buyer and the target operate) consideration may need to be given to whether the approval of the Australian Competition and Consumer Commission (ACCC) may be required under section 50 of the Competition and Consumer Act 2010.
There may be merit in seeking an informal advice from the ACCC before committing substantial funds to an acquisition.
If the Seller is likely to be sensitive to revealing information concerning important customers and a confidentiality agreement will not be sufficient to address its concerns, consideration may need to be given to whether this can be accommodated in the due diligence process. (For example, leaving some information concerning those customers undisclosed until certain benchmarks of the due diligence process have been achieved. If the Buyer is satisfied with the process at that point, consideration may then be given to, for example, providing enforceable undertakings against dealing with those clients for an agreed period if the sale does not proceed.)
As part of planning, the Buyer should in most cases be prepared to engage with the Seller as to how the Buyer has calculated its purchase price.
In a subsequent dispute where the Buyer is asserting that it has lost value in its investment as a result of misrepresentations as to past performance of the business, the benefits of having a clear roadmap as to how the purchase price was calculated will usually outweigh any benefits of keeping the process a Buyer’s secret.
Be clear as to what is being purchased
An important consideration at the outset may be whether to purchase the business (essentially, the goodwill and assets) or, alternatively, whether to purchase the shares in the company which owns the business.