Key Terminology for M&A deals

Share sale

Buyer inherits ALL the liabilities as well as the assets.

Liabilities include: debts, lawsuits, tax issues.

Asset Sale

Buyer only aquires what is agreed.

Note importance to check if key contracts, employees or necessary IP can legally transfer to not avoid frustration.

Approvals

Have to be done so certain deals can go ahead.

Share purchase = need shareholder approval.

Asset purchase = need director approval.

Indemnities or warranties

Used to protect against future legal risks during ongoing litigation with the target company.

Charged property

Property that is used as surety by a lender. Important that these are released in asset sales.

Customer opinion

If consumers are not happy with the products a company is selling, this may lead to future lawsuits or lost revenue.

Property

Is there stability in the locations of the target business?

Are the properties in good condition and/or immediately usable?

Transferrable contracts

Are the current contracts transferrable? As if not, that may lead to losing key relationships that the target relies on for income.

Change of control clauses

Clauses that allow the other party cancel or renegotiate the contract if it is sold.

TUPE

Transfer of Undertakings (Protection of Employment) regulations.

More relevant in asset sales, but regs that ensure that employee rights are transferred in the event of a sale.

Duplicate roles

Multiple roles may lead to restructuring or redundancies.

If not handled properly, it could cause additional costs, employee dissatisfaction, or legal risks.

Union representatives

If not informed or consulted, it may lead to legal risks, delays or disputes.

Cultural concerns

Issues such as cultural integration, staff with mismatched employment terms, language barriers etc

Growing market share

Breaching anti-competition laws could lead to the CMA investigating, delaying or blocking the transaction.

Intellectual Property

If the targer does not own or have the proper rights to the IP, the buyer could face legal challenges or lose access to critical assets which may hurt its value.

Share purchase

Need shareholder approval.

Asset purchase

Need director approval.