In brief - Seek legal and financial advice once the target business is identified
While each acquisition should be carefully analysed and considered on its own merits, there are a number of steps that are typically involved in an acquisition of a private company in Australia. Understanding this process, as well as the key differences between an acquisition of shares and an acquisition of a business, is useful to companies considering this prospect.
Acquiring a business involves deciding on a share or asset purchase
Where a business is operated through an Australian company, a very important consideration is whether the buyer purchases shares in the company from the shareholders or whether it purchases the business and assets of the company directly from the company itself.
Factors that will influence the structure of the acquisition may include:
- liabilities of the company
- assets of the company
- any litigation that the company is involved in
- tax considerations
- regulatory approvals and industry specific licences
- whether the buyer has an existing business that it wishes to transition the target business into
- whether the company has a large number of contracts that would need to be transferred
(Note that the acquisition of a listed public company is subject to other regulatory considerations, including the ASX Listing Rules
and the Corporations Act 2001
Five typical steps involved in a business acquisition
- Identify the business the buyer wishes to acquire.
- Appoint legal, accounting and industry experts.
- submits a non-binding indicative offer to the seller.
- enters into a confidentiality agreement with the seller.
- conducts due diligence of the company. Refer to publicly available information, industry knowledge and your advisers. It is also essential to seek information from the seller directly through a written request.
- considers necessary approvals, particularly with respect to finance and the Foreign Investment Review Board.
- Option: enters into an exclusivity agreement with the seller for the period of the due diligence, so that the buyer is the sole party with whom the seller negotiates the sale of the business.
- After due diligence has been completed, and if the buyer decides to proceed with the transaction, the buyer determines its preferred structure for the acquisition (but noting that, often, the preferred structure will have been decided already by the seller) and enters into a Heads of Agreement with the seller which sets out all of the key commercial and brief legal terms of the acquisition. The aim of the Heads of Agreement is to ensure that there is less room for unexpected disagreement when the full legal documentation is negotiated.
- Prepare, negotiate, finalise and sign sale documentation. Warranties and indemnities are nearly always included in the sale agreement to protect the buyer against potential risks associated with the transaction.
- Do all things necessary to prepare the shares or the assets to transfer to the buyer for completion, and complete the acquisition. Once the sale or transfer has been completed, the buyer and seller may have further obligations to satisfy under their agreement.
The pros and cons of share acquisition vs business acquisition
Notes: The author gratefully acknowledges the contributions of Alana Barlow and Michael Abrahams in the drafting of this article.
The information contained in this document is in the nature of general comment only and arises from our experience in transactions. Every transaction is unique and the correct structure and considerations relating to the acquisition require careful thought and analysis.
This is commentary published by Colin Biggers & Paisley for general information purposes only. This should not be relied on as specific advice. You should seek your own legal and other advice for any question, or for any specific situation or proposal, before making any final decision. The content also is subject to change. A person listed may not be admitted as a lawyer in all States and Territories. © Colin Biggers & Paisley, Australia 2020.