Introduction to Financial Issues in Acquisition Agreements

The Initial Steps

• Setting the target Net Asset Value and understanding the main influences on price

• The importance of the statutory accounts and transactions in the critical window to completion

• Completion accounts – why they are necessary and what they can and should achieve

• What pricing options work best? Based on completion values or using a locked box structure

• Policies, estimates and uncertainties – understanding the positives and the negatives

Case study – acquisition assessment of typical accounting acquisition and financial policies, and consideration of what could be used to your advantage and disadvantage. The case study will consider contentious issues such as contingencies and provisions, financial instruments and impairments.

Debt-free Cash-free

• What is meant by debt-free, cash-free and why it is important

• Reconciling the net proceeds amount

• What is meant by cash, cash equivalents and debt?

• Cash v non-cash transactions – how and why to tell them apart

• Some contentious matters – invoice financing and the increasing use of fair values (net present values)

Case study – examination of a typical balance sheet and consideration of what should be included as debt and what should not. This exercise will introduce issues such as invoice financing arrangements, non-controlling interests, preferred stock and compound financial arrangements (convertibles)

Working Capital

• What is meant by working capital

• What should be included and when is it significant – what types of business acquisition agreements and financial industry

• Calculating working capital needs through an asset acquisition agreement

• Cash movement restrictions

• Timing the transaction to maximise the advantage – the window dressing acquisition opportunities

Case study – calculating working capital requirements and identifying the fundamental uncertainties – how could these be used for or against you?

Locked Box Agreements

• What is a locked box provision and how does it work?

• Why do such acquisition agreements exist compared to the traditional structures used?

• What are the likely problem areas and what protections should be put in place?

Earnouts

• Why are these used and when are they best used?

• Typical performance indicators and measures

Final exercise (if time) – how to mark up a typical SPA

Training Objectives

• Learn how to set a target net asset value and understand the positives and the negatives of the underlying acquisition policies, estimates and uncertainties

• Get an overview of what is meant by “debt-free, cash-free” and why it is important

• Understand what is meant by working capital and how to calculate working capital acquisition needs

• Master the acquisition principles of locked box agreements

• Gain an understanding of why and where earn-outs are best used and their advantages and disadvantages

Training Course Summary

This Introduction to Financial Issues in Acquisition Agreements training course is designed to help attendees understand and deal effectively with the financial issues arising from sale and purchase agreements. The course will be especially useful for company executives, accounts and finance staff who will need to appreciate how the planned transaction may affect them and their work. The content will help lawyers who need to work with reporting accountants to try and get the deal completed successfully. It may also be useful for the reporting accountant to better appreciate the concerns of the lawyers. It will help all attendees to prepare for discussions and negotiations around working capital and completion accounts. Cash-free debt-free transactions, earn-out agreements and the option to apply locked box provisions.

The course will also consider some of the key current issues such as the impact of the acquisition transition to the new UK GAAP from 2014, the new IFRS on revenue recognition and leasing and the full impact of fair value accounting on sale and purchase negotiations. The course will help participants to add value to the transaction.

This course is designed to be highly practical and will include acquisition case studies that will reflect the actual sale and acquisition purchase agreement process including the most common contentious areas.