QUESTION ONE – In your experience, what are the key considerations that international clients should have the front of mind when assessing a target company for acquisition in your jurisdiction?
Due diligence around fiscal, labour, financial, environmental, administrative and anti-corruption is crucial.
This due diligence should help evaluate the best strategy regarding tax matters, considering, among others, annual income tax and amortisation of intangible assets. It should also allow buyers to fully understand the situation of the target company, in order to identify its assets. These might include agreements, profits, machinery, real estate, client and financial portfolio, reputation and intellectual property. It will also identify possible liabilities, such as union matters, pending or threatened claims, and social security issues.
Based on the information provided by the due diligence, a buyer should be able to identify the possible risks, determine if it’s best to acquire the company or to enter an asset purchase agreement, and negotiate the purchase price.
QUESTION TWO – How would you, as a professional advisor, approach the due diligence process to ensure all bases are covered prior to a sale price being agreed?
A documentation system is important to record every step of the process. It will indicate responsible parties and, most importantly, establish the frequency of updates and reports on the advances of the process. This will give buyers quick access to the information that has been gathered.
After this system is established, it is also advisable to plan a visit to the target company in order to meet with the staff, gather information relevant to the operation and thus have an overview of the situation of the company.
In order to certify that the agreed price is appropriate for the operation, it is important to include the value of the intangible assets of the target company. The appraisal should be performed by an expert, which may be a business appraiser or an expert public broker. The referred evaluation must consider the possible change in the value of the assets or shares when the transfer takes place, as well as an investigation of the current or pending claims and possible contingencies including their costs.
QUESTION THREE – Once an acquisition is agreed, what are the key clauses or warranties and indemnities you would recommend for inclusion in the sales contract?
- Environmental matters: It is the obligation of the seller to include a phase one outline, as well as the environmental licenses and permits that may be applicable to the buyer.
- Data transfer: It is important to indicate the terms under which personal data transfer will take place, as well as the privacy notice that will regulate the use of the referred information.
- Confidentiality, non-disclosure and non-solicitation: It is important to make sure that the obligation of the parties to keep confidential information private survives the term of the agreement. A standard period of validity of this obligation is five years after the validity of the agreement. Accordingly, a non-solicitation clause is advisable in order to protect the commercial interests of the buyer.
- Anti-corruption: It is very important to include a clause regarding the fulfilment of anti-corruption regulations, especially considering that non-compliance with these obligations may result in costly fines, criminal liability and even the liquidation of the company via judicial order.
- Liabilities and claims: In order to ensure legal certainty for the buyer, one must always include the obligation of the seller to indemnify and hold the buyer harmless from any claim or liability derived from the operation of the target company prior to the sale. This is one of the most important clauses of the sales contract, given that it is common for the risks that are identified during the due diligence to become a liability or claim after the sale has taken place.
- Operational licenses and permits: The seller is obliged to ensure the legal existence or certainty of obtainment of the licenses and permits that may be required for the operation of the business.
- Required consents or authorisations: It is important to always establish the obligation to obtain the written consent of third parties, especially for the cases of assignment of contracts. You must also document the corporate authorisation of the operation from both companies through shareholders or partner resolutions, duly formalised before a public notary.
- Misrepresentation: In order to have certainty regarding the representations of the parties, it is advisable to include misrepresentation as to a cause for rescinding the agreement.
Tips for completing a successful cross-border acquisition
Seek the advice of certified experts for the valuation of the company to be acquired
Contemplate the pros and cons of acquiring shares vs. acquiring assets
Always include indemnity clauses.
This excerpt was taken from the IR Global Guide: International Deal Making: Assisting Acquirers. To view the full publication, please click here.
