Major terms in a private M&A transaction

The commercial terms of a private M&A transaction may sometimes be agreed to some extent in the heads of terms between the relevant parties.  Although this typically may not be legally binding among the parties, it would set out key terms of the proposed private M&A transaction and the respective parties’ obligations in connection therewith which will form the framework for definitive agreement.  Typically, it would include, inter alia:

General information of the transaction

• parties of the private M&A transaction (may include buyer or seller and parent company guarantor);

• details of the company or the company the shares of which is being acquired.

The shares

• agreement to sell and purchase the shares – normally with “full title guarantee” or wording of similar effect e.g. “free from all claims, charges, liens, encumbrances, equities and adverse rights of any description”.

Consideration and payment method

• the consideration for the shares (that is, cash or cash equivalent, shares in the buyer (share swap), debt instrument such as loan stock, other non-cash considerations or a combination of them);

• payment, settlement and completion mechanisms – note that exchange and completion may take place simultaneously or there may be a time gap for the satisfaction of certain conditions precedent for the transaction; on completion, executed stock transfer forms, share certificates, statutory books and records etc. are delivered by the seller against the payment by the buyer of the consideration. 

Conditions precedent

• any conditions that must be satisfied prior to completion of the sale, often referred to as conditions precedent (for example, obtaining of relevant shareholders’ and regulatory approvals or consents; obtaining of tax clearance or obtaining of certain third party consents etc.).

Representations, warranties, indemnities and undertakings

• representations, warranties and indemnities to be given by the seller in connection with the shares and/or the underlying assets of the companies the shares relate;

• undertakings of the seller in connection with pre-completion conduct (if signing and completion is not simultaneous) and/or post-completion matters;

• tax covenants and indemnities to be given by the seller in connection with pre-completion tax liabilities in connection with shares or underlying assets.

Limitation on liability

• limitations on liability of the seller in connection with claims that may be brought against the seller (by excluding small claims, stipulating a monetary threshold, preventing double recovery etc.) and usually the claims would be limited to the consideration paid by the buyer for the target group or relevant shares;

Other provisions

• retention clause, if applicable, where part of the consideration is retained by the buyer or put in escrow as security for certain claims under the agreement or conditional upon occurrence of certain events;

• other standard provisions relating to confidentiality, exclusivity, assignments, governing law etc.

CH-005058 (Webpage Portal)

2013-08-08 (Published)

2021-05-19 (Updated)

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