- Mergers & Acquisitions is an incredibly broad area of law. In essence, it is the transaction in which businesses or assets are transferred or combined. Whilst there are a multitude of ways to structure a transaction, each fall into one or more of 3 broad areas:
- share sales;
- asset sales; and
- the sale of a business as a going concern.
- Each transaction will have many considerations, including value, intended operating structure, current operating structure, regulatory requirements (particularly if one of the entities is a public company), exit strategies, tax/duty implications and the general risk profile of the asset/business.
- Our Mergers & Acquisitions lawyers do much more than just draft a sale agreement. The process will involve initial negotiations, structuring the transaction, drafting and reviewing sale agreements, performing due diligence to ensure you are getting what you pay for, ensuring the sale settles and attending to various registrations and tax/duty assessment.
- All this is done in conjunction with the client’s other advisors, including accountants, financial planners, financiers, technical advisors (such as engineers, geologists, etc) and corporate advisors.
- The complexity of a share sale agreement depends on many factors such as the size of the target company, assets owned by the target company, the number of shares being purchased, whether there are multiple classes of shares, whether the company is public or private and the amount of control the incoming shareholder wishes to exercise.
- If one of the parties is a publicly listed company, there is the added complexity of complying with the Corporations Act and ASX listing rules, which includes complying with continuous disclosure provisions, insider trading provisions and confidentiality prior to executing the agreement.
- If purchasing a significant portion of a public company, you must consider the 20% rule, which prevents you buying 20% of the voting power shares unless you satisfy an exemption.
- When buying or selling shares in a private company, there are still a number of considerations which need to be taken into account. The first of those is whether the company actually owns the assets it claims to own and whether its financial statements are a true reflection of the company’s business (basic due diligence process).
- Once you are satisfied with the results of your due diligence, you need to then execute the final transaction documents and have the transaction registered with ASIC so their records reflect the true ownership of the company. If you are not satisfied, it may change how the transaction looks or you may terminate the process entirely.
- Recently, Laird Lawyers were involved in the acquisition of 30% of a publicly listed company’s subsidiary (the sole asset of which being a mining tenement) with a further farm in option to acquire a larger interest in the company as the mine is developed.
- On a smaller scale, Laird Lawyers advised a small property management company with 2 shareholders/directors (both who worked in the company) on various clauses regarding one of the shareholders exiting the business, particularly around potential restraint of trade clauses impacting their ability to compete with the company.
- Sometimes a seller only wants to dispose of one side of the business or particular assets that are no longer needed. In these circumstances, it may not make sense to sell an interest in the company or the business as a going concern.
- In addition to the acquisition of new assets, it may also be beneficial to restructure for risk minimisation by transferring assets from the operating business to an asset holding company to protect the assets from business creditors.
- For example, we have advised a number of capital intensive companies on their on their structuring such that a company sells its assets to a related entity which then leases back the equipment to the business. Whilst it seems a simple strategy, there are additional considerations such as tax and PPSR registration to be taken into account.
- Additionally, we have acted for a company which was “buying out” a competitor so had no need for their goodwill and decided just to purchase business’ assets to expand its own operation whilst the seller wound up.
- Selling a business as a going concern means that all the business assets which are required to keep the business operating (such as intellectual property and goodwill) are transferred to the buyer.
- The benefit to selling it as a going concern is that the purchase is not subject to GST, provided various conditions are met. Therefore, it is vital that the business sale agreement contains the required GST promises required by the tax law and states clearly it is a sale as a going concern.
- Another important consideration is that there are sufficient protections in place to ensure that the seller continues to operate the business from the contract date to the settlement date.
- Finally, there are many other considerations for a purchaser to take into account, including adequate due diligence clauses whether there needs to be a novation or transfer of other agreements, such as supply agreements, leases, employment contracts, etc.
For example, we have acted in a matter where a person purchased a hire business as a going concern but did not perform a detailed due diligence. There were various representations about the number of items being purchased but it did not come to light until a year later (and a year after significant losses) that the business actually owned significantly less assets than represented and it would be impossible to make the profit the seller claimed to be making.