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This note is a guide to PLC Corporate's asset (business) sale and purchase materials, including links to all relevant materials.
This toolkit contains links to all of PLC Corporate's materials relating to the acquisition of the assets of a business.
This toolkit focuses on the materials that are likely to be of relevance to an asset purchase transaction between an unconnected seller and buyer. For materials relating to the transfer of a business as part of an intra-group reorganisation, see A toolkit for intra-group reorganisations (www.practicallaw.com/9-518-4320).
For materials relating to the acquisition of the shares in a company, see:
When acquiring the assets of a business as a going concern, there are a number of procedural steps a buyer will go through, including structuring the transaction, putting in place preliminary agreements with the seller, carrying out due diligence, negotiating key transaction documents and finally, signing and completing the acquisition.
When structuring an asset purchase, a buyer will need to consider a number of matters, including the following:
How should the target business and assets be valued?
How will the buyer finance the acquisition?
Who is the seller? What is the financial position of the seller?
Are any of the parties to the transaction publicly listed? If so, additional approvals may be required.
What are the competition implications of the acquisition (if any)?
How will the acquisition affect the employees, pension arrangements and intellectual property of the target business?
What are the tax consequences of the transaction structure (see Tax).
A prospective buyer may enter into a number of agreements with the seller before the parties begin detailed negotiations relating to the asset purchase agreement.
Sellers will usually require the buyer to sign a confidentiality agreement, agreeing to keep confidential all information about the target business that is disclosed during the course of the transaction. It is also common for the key terms of a transaction to be set out in a non-binding heads of terms or letter of intent. Provisions regarding exclusivity and break fees may be included in a heads of terms or in a stand alone agreement.
Due diligence is the information gathering process carried out by a prospective buyer to find out as much information as possible about the target business and assets early in the negotiation process.
Legal due diligence will often involve a lengthy questionnaire from the buyer's solicitors requesting information from the seller. The buyer's solicitors will then usually prepare a legal due diligence report for the buyer, highlighting any potential legal issues. The buyer will be particularly interested in issues that potentially affect the value of the target business and assets.
On larger transactions, it is common for sellers to set up a data room containing information about the target business for buyers to access when conducting due diligence. The data room may be a physical data room, although it is increasingly common for sellers to use an on-line data room that allows prospective buyers to access materials via a website.
The asset purchase agreement is the principal contractual document in an asset acquisition. The asset purchase agreement will set out all the terms of the transaction, including details of the assets being acquired and the respective parties' obligations in connection with the transaction.
On most asset acquisitions, the asset purchase agreement will contain a number of warranties given by the seller in relation to the target business and assets. Where this is the case, the seller will usually prepare a disclosure letter which qualifies the warranties given in the asset purchase agreement. The disclosure letter will therefore be a key transaction document, and will usually be heavily negotiated between the parties.
On an asset purchase, a number of ancillary documents are likely to be necessary in addition to the asset purchase agreement and the disclosure letter. Most of these ancillary documents will be required to perfect the transfer of certain assets to the buyer as part of the transaction. For example, property transfers and/or lease assignments, assignments and/or novations of contracts, assignments of intellectual property and so on.
Depending on the structure of the transaction consideration, other ancillary agreements may be required to document certain matters in relation to the payment of the purchase price (for example, if part of the purchase price will be retained on completion as security for any warranty of indemnity claims that may arise).
In some transactions, it will be necessary for the seller (or another member of its corporate group) to provide services to the transferred business on a transitional basis following completion of the transaction. In such cases, the ancillary documents may include a transitional services agreement, which sets out the basis upon which such transitional services are to be provided.
In many transactions, the signing of the asset purchase agreement and completion of the transaction will take place simultaneously, However, in some cases, there may be a gap between signing and completion of the acquisition to allow time for certain conditions to be fulfilled, or consents to be obtained.
As a matter of good corporate governance, the board of directors of the buyer and (in the case of a corporate seller) the seller should hold meetings to approve the terms of the acquisition before the asset purchase agreement is signed.
On completion of an asset purchase, the target business and assets will be transferred to the ownership of the buyer, and the buyer will pay the purchase price in accordance with the terms of the asset purchase agreement.
As a matter of good corporate governance, the board of directors of the buyer and (in the case or a corporate seller) the seller should hold meetings to approve completion of the transaction. Where signing and completion will take place simultaneously, the board meetings should also approve the terms of the transaction and the execution of the transaction documents.
The terms of the asset purchase agreement will usually set out the documents that the seller must deliver to the buyer on completion. The completion documents required will largely be driven by the structure of the transaction and the agreed method of discharging the purchase price. However, the completion documents will normally include the ancillary transaction documents (such as any assignments, novation agreements and so on; see Other ancillary documents), any documents relating to the payment of the purchase price (such as retention or escrow agreements) and (in the case of a corporate seller) a copy of the seller's board minutes approving the transaction.
Following completion of an asset purchase, the buyer will need to attend to various post-completion matters. Although these matters will vary according to the structure of the transaction, they could include announcing the transaction, delivering notices of assignment to relevant counterparties, paying any stamp duty or SDLT due on the purchase price (see Tax) and dealing with various administrative matters (such as insurance, payroll, PAYE and VAT).
Whilst any tax liabilities of the target business are usually retained by the seller in an asset purchase transaction, there are a number of important tax issues to be taken into account when structuring an asset sale.