MERGERS & ACQUISITION
INHOUDSOPGAVE
Course schedule........................................................................................................................................................ 10
Topics of lectures................................................................................................................................................ 10
M&A: introduction ...................................................................................................................................................... 10
What is the course about? ...................................................................................................................................... 10
M&A lawyers .......................................................................................................................................................... 11
Studying M&A from a legal perspective ................................................................................................................. 11
Deals by Klausner/Subramanian .......................................................................................................................... 11
TYPES OF DEALS .................................................................................................................................................... 12
ACQUISITION ..................................................................................................................................................... 12
TYPES OF DEALS ................................................................................................................................................. 12
Intra-group reorganisations ................................................................................................................................. 16
Tender offer = public takeover .............................................................................................................................. 16
Share deal versus asset deal ................................................................................................................................... 16
Sales: share deal versus asset deal ...................................................................................................................... 16
players................................................................................................................................................................... 18
Sellers and buyers............................................................................................................................................... 18
Strategicvs “other” m&a ...................................................................................................................................... 19
Investment funds ................................................................................................................................................ 19
Bankers .............................................................................................................................................................. 20
Lawyers .............................................................................................................................................................. 20
accountants ....................................................................................................................................................... 20
Why are deals pursued ........................................................................................................................................... 20
Takeover activity comes in waves ......................................................................................................................... 20
Tetter to buy or to build? ...................................................................................................................................... 20
Reasons why firms want to do deals ..................................................................................................................... 20
CORPORATE VALUATION ........................................................................................................................................... 22
LIST OF TOPICS ...................................................................................................................................................... 22
ILLUSTRATION OF KEY ONCEPTS AND VALUATION METHODS .................................................................................. 22
INTRODUCTION ..................................................................................................................................................... 22
WHAT? ............................................................................................................................................................... 22
SOURCES OF INFORMATION ............................................................................................................................... 22
FINANCIAL STATEMENTS..................................................................................................................................... 23
BACKWARD OR FORWARD LOOKING................................................................................................................... 24
NOT ALL VALUES ARE EQUAL .................................................................................................................................. 24
EQUITY VALUE VS ENTERPRISE VALUE ................................................................................................................. 24
1
, INVESTED CAPTIAL VALUE................................................................................................................................... 24
COST & RETURN: ROE, ROIC and WACC .................................................................................................................. 26
ROE VS ROIC ...................................................................................................................................................... 26
WACC ................................................................................................................................................................ 26
ROIC VS WACC ................................................................................................................................................... 27
SOME KEY CONCEPTS ............................................................................................................................................ 27
DIFFERENT TYPES OF INCOME ............................................................................................................................ 28
EBITDA ............................................................................................................................................................... 28
CASH FLOW ....................................................................................................................................................... 28
3 statements model - illustration ......................................................................................................................... 30
working capital ................................................................................................................................................... 31
Net Present value & discount rate ........................................................................................................................ 31
Principal methods of valuation ................................................................................................................................ 32
INCOME VS ASSETS ............................................................................................................................................ 32
1. ASSET-BASED APPROACHES ........................................................................................................................... 32
2. Earnings-based approaches............................................................................................................................. 34
3. Market-based approaches / Multiples............................................................................................................... 35
6. Combining methods of valuation ......................................................................................................................... 39
The Best Choice May Be a Combination................................................................................................................ 39
Reconciliation – example..................................................................................................................................... 39
HT 3 private M&A – PART i ........................................................................................................................................... 40
What is private m&a? .............................................................................................................................................. 40
What is private m&a? .......................................................................................................................................... 40
Public / private m&a - recap ................................................................................................................................. 40
Deal and process ................................................................................................................................................ 41
Initial screening .................................................................................................................................................. 41
Deal structuring .................................................................................................................................................. 41
Asset deal vs share deal ...................................................................................................................................... 42
Structuring the process ....................................................................................................................................... 44
Controlled auction ................................................................................................................................................. 45
Public auction vs private auction.......................................................................................................................... 45
Auction vs. Negotiated deal ................................................................................................................................. 46
Definition of controlled auction............................................................................................................................ 46
Assemble a team ................................................................................................................................................ 46
Controlled auction - order of events......................................................................................................................... 46
Orders of events ................................................................................................................................................. 47
Teaser ................................................................................................................................................................ 47
Information memorandum .................................................................................................................................. 48
2
, Due diligence...................................................................................................................................................... 48
Indicative bid ...................................................................................................................................................... 50
Acquisition documentation ................................................................................................................................. 50
Binding offer ....................................................................................................................................................... 50
Private auction vs negotiation .............................................................................................................................. 51
Share purchase agreement- drafting & negotiations .............................................................................................. 52
SPA ........................................................................................................................................................................... 54
Structure of the SPA................................................................................................................................................ 54
The Deal structure .................................................................................................................................................. 54
Transaction process structure................................................................................................................................. 55
Target company...................................................................................................................................................... 55
Price ...................................................................................................................................................................... 56
Locked box vs completion accounts ........................................................................................................................ 57
Representations and warranties .............................................................................................................................. 57
Types of warranties................................................................................................................................................. 59
Types of warranties – CONT’D .............................................................................................................................. 60
MAC – MAE............................................................................................................................................................. 60
MAE ................................................................................................................................................................... 61
MAC ................................................................................................................................................................... 61
Knowledge qualifier ................................................................................................................................................ 61
Indemnification – article 8 ....................................................................................................................................... 62
Limitations ......................................................................................................................................................... 62
Transactional liability insurance (W&I insurance) ..................................................................................................... 63
CONCEPT AND PURPOSE OF W&I INSURANCE .................................................................................................... 63
SUMMARY .......................................................................................................................................................... 64
Pre-closing covenants – article 9 ............................................................................................................................. 64
Conditions precedent – article 10 ............................................................................................................................ 65
SIGNING AND CLOSING ......................................................................................................................................... 65
Post-Closing Covenants – art. 12 ............................................................................................................................. 65
Legal mergers ............................................................................................................................................................ 66
Main features ......................................................................................................................................................... 66
What ?................................................................................................................................................................ 66
Why popular? ..................................................................................................................................................... 66
Applicable legislation .......................................................................................................................................... 67
Related but different transactions ........................................................................................................................... 67
Division /demerger .............................................................................................................................................. 67
Carve outs .......................................................................................................................................................... 67
Spin-offs............................................................................................................................................................. 68
3
, Contribution of universality.................................................................................................................................. 68
U.S. terminology ..................................................................................................................................................... 69
Statutory mergers ............................................................................................................................................... 69
Forward Triangular Merger ................................................................................................................................... 69
Reverse Triangular Merger ................................................................................................................................... 70
Merger types in EU .................................................................................................................................................. 71
EU rules.............................................................................................................................................................. 71
Silent merger ...................................................................................................................................................... 71
Main feature of merger regime: “universal succession” ....................................................................................... 72
Procedure .............................................................................................................................................................. 73
overview ............................................................................................................................................................. 73
Procedure: main elements .................................................................................................................................. 74
Merger proposal .................................................................................................................................................. 74
Procedure continued........................................................................................................................................... 74
consequences .................................................................................................................................................... 74
consideration ..................................................................................................................................................... 75
Share exchange (swap)........................................................................................................................................ 75
Nullity of merger (not discussed).......................................................................................................................... 76
Divisions ............................................................................................................................................................ 77
Allocation of shares ............................................................................................................................................ 78
Creditor protection mergers ................................................................................................................................ 78
Creditor protection in divisions ............................................................................................................................ 78
Cross border mergers.......................................................................................................................................... 79
Pre -merger certificate......................................................................................................................................... 80
Creditor protection: art. 126b .............................................................................................................................. 81
Creditor protection ............................................................................................................................................. 81
Minority protection 126a...................................................................................................................................... 81
Why minority protection?..................................................................................................................................... 81
Potential forms of minority protection .................................................................................................................. 81
126A 2019 Directive: exit right .............................................................................................................................. 82
126A: opposition of shareholders......................................................................................................................... 82
Exit right ............................................................................................................................................................. 82
Who pays cash compensation? ........................................................................................................................... 82
problem of valuation ........................................................................................................................................... 82
Appraisal right..................................................................................................................................................... 82
Employee protection art. 126C ............................................................................................................................ 82
A note on merger accounting ............................................................................................................................... 83
HT 6 Public takeovers in Belgium ................................................................................................................................ 84
4
INHOUDSOPGAVE
Course schedule........................................................................................................................................................ 10
Topics of lectures................................................................................................................................................ 10
M&A: introduction ...................................................................................................................................................... 10
What is the course about? ...................................................................................................................................... 10
M&A lawyers .......................................................................................................................................................... 11
Studying M&A from a legal perspective ................................................................................................................. 11
Deals by Klausner/Subramanian .......................................................................................................................... 11
TYPES OF DEALS .................................................................................................................................................... 12
ACQUISITION ..................................................................................................................................................... 12
TYPES OF DEALS ................................................................................................................................................. 12
Intra-group reorganisations ................................................................................................................................. 16
Tender offer = public takeover .............................................................................................................................. 16
Share deal versus asset deal ................................................................................................................................... 16
Sales: share deal versus asset deal ...................................................................................................................... 16
players................................................................................................................................................................... 18
Sellers and buyers............................................................................................................................................... 18
Strategicvs “other” m&a ...................................................................................................................................... 19
Investment funds ................................................................................................................................................ 19
Bankers .............................................................................................................................................................. 20
Lawyers .............................................................................................................................................................. 20
accountants ....................................................................................................................................................... 20
Why are deals pursued ........................................................................................................................................... 20
Takeover activity comes in waves ......................................................................................................................... 20
Tetter to buy or to build? ...................................................................................................................................... 20
Reasons why firms want to do deals ..................................................................................................................... 20
CORPORATE VALUATION ........................................................................................................................................... 22
LIST OF TOPICS ...................................................................................................................................................... 22
ILLUSTRATION OF KEY ONCEPTS AND VALUATION METHODS .................................................................................. 22
INTRODUCTION ..................................................................................................................................................... 22
WHAT? ............................................................................................................................................................... 22
SOURCES OF INFORMATION ............................................................................................................................... 22
FINANCIAL STATEMENTS..................................................................................................................................... 23
BACKWARD OR FORWARD LOOKING................................................................................................................... 24
NOT ALL VALUES ARE EQUAL .................................................................................................................................. 24
EQUITY VALUE VS ENTERPRISE VALUE ................................................................................................................. 24
1
, INVESTED CAPTIAL VALUE................................................................................................................................... 24
COST & RETURN: ROE, ROIC and WACC .................................................................................................................. 26
ROE VS ROIC ...................................................................................................................................................... 26
WACC ................................................................................................................................................................ 26
ROIC VS WACC ................................................................................................................................................... 27
SOME KEY CONCEPTS ............................................................................................................................................ 27
DIFFERENT TYPES OF INCOME ............................................................................................................................ 28
EBITDA ............................................................................................................................................................... 28
CASH FLOW ....................................................................................................................................................... 28
3 statements model - illustration ......................................................................................................................... 30
working capital ................................................................................................................................................... 31
Net Present value & discount rate ........................................................................................................................ 31
Principal methods of valuation ................................................................................................................................ 32
INCOME VS ASSETS ............................................................................................................................................ 32
1. ASSET-BASED APPROACHES ........................................................................................................................... 32
2. Earnings-based approaches............................................................................................................................. 34
3. Market-based approaches / Multiples............................................................................................................... 35
6. Combining methods of valuation ......................................................................................................................... 39
The Best Choice May Be a Combination................................................................................................................ 39
Reconciliation – example..................................................................................................................................... 39
HT 3 private M&A – PART i ........................................................................................................................................... 40
What is private m&a? .............................................................................................................................................. 40
What is private m&a? .......................................................................................................................................... 40
Public / private m&a - recap ................................................................................................................................. 40
Deal and process ................................................................................................................................................ 41
Initial screening .................................................................................................................................................. 41
Deal structuring .................................................................................................................................................. 41
Asset deal vs share deal ...................................................................................................................................... 42
Structuring the process ....................................................................................................................................... 44
Controlled auction ................................................................................................................................................. 45
Public auction vs private auction.......................................................................................................................... 45
Auction vs. Negotiated deal ................................................................................................................................. 46
Definition of controlled auction............................................................................................................................ 46
Assemble a team ................................................................................................................................................ 46
Controlled auction - order of events......................................................................................................................... 46
Orders of events ................................................................................................................................................. 47
Teaser ................................................................................................................................................................ 47
Information memorandum .................................................................................................................................. 48
2
, Due diligence...................................................................................................................................................... 48
Indicative bid ...................................................................................................................................................... 50
Acquisition documentation ................................................................................................................................. 50
Binding offer ....................................................................................................................................................... 50
Private auction vs negotiation .............................................................................................................................. 51
Share purchase agreement- drafting & negotiations .............................................................................................. 52
SPA ........................................................................................................................................................................... 54
Structure of the SPA................................................................................................................................................ 54
The Deal structure .................................................................................................................................................. 54
Transaction process structure................................................................................................................................. 55
Target company...................................................................................................................................................... 55
Price ...................................................................................................................................................................... 56
Locked box vs completion accounts ........................................................................................................................ 57
Representations and warranties .............................................................................................................................. 57
Types of warranties................................................................................................................................................. 59
Types of warranties – CONT’D .............................................................................................................................. 60
MAC – MAE............................................................................................................................................................. 60
MAE ................................................................................................................................................................... 61
MAC ................................................................................................................................................................... 61
Knowledge qualifier ................................................................................................................................................ 61
Indemnification – article 8 ....................................................................................................................................... 62
Limitations ......................................................................................................................................................... 62
Transactional liability insurance (W&I insurance) ..................................................................................................... 63
CONCEPT AND PURPOSE OF W&I INSURANCE .................................................................................................... 63
SUMMARY .......................................................................................................................................................... 64
Pre-closing covenants – article 9 ............................................................................................................................. 64
Conditions precedent – article 10 ............................................................................................................................ 65
SIGNING AND CLOSING ......................................................................................................................................... 65
Post-Closing Covenants – art. 12 ............................................................................................................................. 65
Legal mergers ............................................................................................................................................................ 66
Main features ......................................................................................................................................................... 66
What ?................................................................................................................................................................ 66
Why popular? ..................................................................................................................................................... 66
Applicable legislation .......................................................................................................................................... 67
Related but different transactions ........................................................................................................................... 67
Division /demerger .............................................................................................................................................. 67
Carve outs .......................................................................................................................................................... 67
Spin-offs............................................................................................................................................................. 68
3
, Contribution of universality.................................................................................................................................. 68
U.S. terminology ..................................................................................................................................................... 69
Statutory mergers ............................................................................................................................................... 69
Forward Triangular Merger ................................................................................................................................... 69
Reverse Triangular Merger ................................................................................................................................... 70
Merger types in EU .................................................................................................................................................. 71
EU rules.............................................................................................................................................................. 71
Silent merger ...................................................................................................................................................... 71
Main feature of merger regime: “universal succession” ....................................................................................... 72
Procedure .............................................................................................................................................................. 73
overview ............................................................................................................................................................. 73
Procedure: main elements .................................................................................................................................. 74
Merger proposal .................................................................................................................................................. 74
Procedure continued........................................................................................................................................... 74
consequences .................................................................................................................................................... 74
consideration ..................................................................................................................................................... 75
Share exchange (swap)........................................................................................................................................ 75
Nullity of merger (not discussed).......................................................................................................................... 76
Divisions ............................................................................................................................................................ 77
Allocation of shares ............................................................................................................................................ 78
Creditor protection mergers ................................................................................................................................ 78
Creditor protection in divisions ............................................................................................................................ 78
Cross border mergers.......................................................................................................................................... 79
Pre -merger certificate......................................................................................................................................... 80
Creditor protection: art. 126b .............................................................................................................................. 81
Creditor protection ............................................................................................................................................. 81
Minority protection 126a...................................................................................................................................... 81
Why minority protection?..................................................................................................................................... 81
Potential forms of minority protection .................................................................................................................. 81
126A 2019 Directive: exit right .............................................................................................................................. 82
126A: opposition of shareholders......................................................................................................................... 82
Exit right ............................................................................................................................................................. 82
Who pays cash compensation? ........................................................................................................................... 82
problem of valuation ........................................................................................................................................... 82
Appraisal right..................................................................................................................................................... 82
Employee protection art. 126C ............................................................................................................................ 82
A note on merger accounting ............................................................................................................................... 83
HT 6 Public takeovers in Belgium ................................................................................................................................ 84
4
