Page 32 - SONEPAR 2021 - AcquisitionBook

5
PHASE 5: SALE & PURCHASE AGREEMENT
Select the appropriate pricing mechanism
The terms of all M&A transactions are set forth in a contract (commonly referred to as the SPA) known as the “share purchase agreement”, “asset purchase agreement” or “sale & purchase agreement” between the acquiring and selling parties (and sometimes also the target company). The SPA is a binding agreement and represents the final step before CLOSING of the M&A process.
The SPA must be drafted and reviewed by SONEPAR’s legal, compliance, finance and tax advisors based on the DUE DILIGENCE findings. The SPA and its ancillary documents must be vetted by the HQ Legal team before signing.
5.1 SELECT THE APPROPRIATE PRICING MECHANISM
Two calculation mechanisms may be considered to determine the purchase price in a SPA: the CLOSING ACCOUNTS or the LOCKED BOX.
The price offer in the LOI is commonly made on a “debt-free, cash-free basis”. In this case, some adjustments will be required in order to reach a calculation of the equity price (or price for shares), known as “equity bridge”.
ENTERPRISE VALUE of the business:
Initial ENTERPRISE VALUE X
DD adjustments (x) Debt/cash free price X
Plus cash x Less debt (x)
M currency:
NET DEBT adjustment
Plus WORKING CAPITAL
Less normal WORKING CAPITAL
X/(X)
Adjustments to price driven x/(x) By SPA mechanism:
(x) Equity bridge X/(X)
WORKING CAPITAL adjustment
Other adjustments (x) Purchase price (Equity price) X
5.1.1 CLOSINGACCOUNTS
Under a CLOSING ACCOUNTS mechanism, the purchaser will pay a final purchase price based on the actual level of assets and liabilities at the CLOSING date. The CLOSING ACCOUNTS will form the basis to determine the NET DEBT and the WORKING CAPITAL that will be used according to the agreed price formula.
The normal level of WORKING CAPITAL will be a point of negotiation between the seller and the purchaser and it should correlate to a level of WORKING CAPITAL to support the sustainable profits of the target adjusted for all exceptional items. As an indication it should correspond to last 6 to 12-month average.
The CLOSING ACCOUNTS mechanism typically implies: ➜ greater protection for the purchaser:
• the price will be adjusted if business has deteriorated before CLOSING or if the seller tries to reduce the WORKING CAPITAL before the CLOSING by delaying payment to suppliers,
• the purchaser can verify the CLOSING ACCOUNTS once in full control of the business;
➜ a final purchase price known several weeks after CLOSING.
30 SONEPAR - ACQUISITION MANUAL - 2021 - FOR INTERNAL USE ONLY
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