Specialist corporate services
This is a UK group of companies in the medical technology sector sold internationally to a larger Scandinavian based group. The UK group was introduced to us some years earlier to undertake a variety of corporate and business law services by another firm of solicitors which does not undertake specialist corporate work.
- The transaction carried a degree of anxiety because on a previous occasion an intending buyer on mainland Europe withdrew just after the Brexit referendum result. Current buyers were in Scandinavia and all parties were not only working cross border but up against Christmas and year-end holiday and banking interruptions.
- Some shareholders had long left the company, one of which holding a minority position in a subsidiary. The buyer wished to be assured of acquiring 100% of all companies and to obtain the customary range of warranties and indemnities at least from those still familiar with the businesses.
- There were a number of monetary accounts to reconcile/ settle on the sale side intra group and between group companies and individuals on or before completion as well as transaction expenses.
- The group had undergone significant rationalisation and streamlining in the recent past the full benefits of which had not yet entirely worked through to results.
- Although the transaction was governed by English law the documents were Scandinavian in style/ approach. The buyer lawyers had a different take on things too. This called for a particular understanding of others and their ways of expressing and doing things. There were year-end and seasonal time pressures to accommodate as well. The main shareholders knew the buyers well enough and instructed that an opinion on the buyer’s corporate standing from a lawyer in the buyer’s jurisdiction, and a buyer guarantee, need not be sought. This aided the overall speed of the transaction.
- Strong re-organisation and M&A leadership and expertise had resided within the group for several years. With guidance from us, where sought, the relevant person was able amongst many other things to break the back of disclosure and provide numerical expression for everything that was going on. Communication with and authority from all shareholders on an equal footing was key to our advice. This was done by means of the group's own internal memoranda and by other means, as also with employees. The principal shareholders entered into a long form share sale agreement and provided the business warranties/ indemnities to the buyer. Those with small holdings entered into a short share sale agreement warranting good title to their shares. Several years earlier we had introduced drag and tag along provisions to the articles of association of the top company and the subsidiaries. It was now reassuring to know they were there, although not ultimately needed or used. not requiring implementation of these procedures also quickened the timetable. The parent company did however waive its right of pre-emption on transfer so that if buyer wished the minority holdings could be transferred directly to the buyer or as it directed instead of to our parent holding company.
- The various monetary accounts required resolution centrally. In additional, the principal shareholders wanted protection should claims be made against them for breach of warranty. This necessitated umbrella arrangements which we called a proceeds agreement. The monetary accounts and the role of this agreement having been explained in a memorandum the sellers with smaller holdings could have the benefit of the agreement, subject to the rights of others expressed within it, without executing it. This was achieved using trust concepts and relying on the Contracts (Rights of Third parties) Act 1999. Solicitors and accountants respectively were appointed as administrators concerning the receipt and application of sale proceeds received on completion and on the earn-out dates respectively. Both administrators were given powers and immunities to receive, hold, settle, retain, distribute and to provide account to meet the objectives of the sellers and the group companies. The proceeds agreement was supported with a number of letters of authority and receipts.
- The sellers were able to capture the anticipated future benefit of the rationalisation through the use of earn-out provisions within the share sale agreement and thereby receive further payment for their shares in the circumstances prescribed. The earn-out provisions followed fairly standard lines with the addition of some seller emphasis to achieve clarity of entitlement and of amount and unfettered payment.
To everyone’s credit these international transaction documents were finalised and signed by the year end and risk and reward was agreed to pass at that time once funds were transferred into the UK and title was transferred, which happened early in January.
There is no set way of doing things. Our best role as transaction solicitors is to supplement and work with whatever resources a client has and wishes itself to deploy. By being adaptable, responsive and collaborative we were able, with our client colleagues, to achieve a cross border completion in a relatively short time frame. We were able creatively to shape the law and documentation to meet the circumstances of a relatively unusual seller shareholders’ profile and the expectations of an international foreign law buyer.
Expert Merger & Acquisiton Advice
This is a digital marketing group of some years standing with several equal shareholders to be combined with another independent digital market group and an investment of £multi- M private equity funding and partial management buyout/ dilution. One of the equal shareholders required specialist independent advice and was recommended to us by the CEO of a large third group in the sector.
- To assimilate, report, advise and provide reassurance to a full time working executive on a large quantity of complex documentation at short notice over a short time period pre-closing.
- To convey concerns and obtain positive resolution with multiple incumbent very large law firms.
- It was critical to the client that the proposed private equity articles of association and service agreement did not require the forfeiture of shares except in the gravest of circumstances defined as “very bad leaver”, that the operation of roll over relief, entrepreneur’s relief and the s431 election were fully understood and that there would not be any unexpected tax charges.
- More broadly, the client’s imperative was that the contents and import of the draft documents (a) corresponded with his understanding of the several company acquisitions, the private equity funding mechanisms and the new group structure and (b) contained no “hidden surprises”.
- Background experience allowed us to separate the important from the unimportant documents and angles; to advise/ reassure on what is customary, what is not normal and what lies in between - with private equity buy-outs.
- Our capacity, commitment and flexibility allowed the immediate provision of transaction engagement……. almost 24/7.
- We ascertained that the client required and provided short “translation” notes on critical legal, commercial and tax issues within draft documents, plus some advocacy with the other parties where needed on matters of difference/ difficulty.
On closing the client entered into the buy-out documents confident of everything within them and of his future in the new significantly enlarged £multi-M organisation.
There is no set way of doing things. We deploy our background experience and specialist corporate law know-how in whatever ways a particular client requires in the available time.
M&A/ Employee Ownership Trust
Sale of companies to an employee ownership trust (EOT) using the 2014 tax framework now in section 236 (H) – (U) of the Taxation of Chargeable Gains Act 1992.
- A paucity of market and technical background on similar prior UK transactions.
- Reliance on distributable reserves.
- Vigilance required around duties and conflicts.
- Preventing a post-transaction disqualifying event.
- Our persistence led to some limited and patchy third party market intelligence within prior UK transactions. Creative joining of dots and filling of gaps followed, drawing from analogous work before making successful statutory and extra statutory tax clearance applications and completing the M&A/ Employee Ownership Trust package.
- The companies’ own profits were to fund the consideration, present and future. Payments made in breach of distribution law may require directors to repay (even if not personally in receipt). A forensic and blended accounting/ legal analysis is critical, backed up by formal P+L and cash flow assumptions and projections.
- Although sellers may not be beneficiaries there remain varied overlaps of interests. Conflicts not identified and addressed may cause unenforceability and directors’ liability to account. Special procedures in the Companies Act and the articles of association must be followed to protect transaction reliability. Separate advisers should be considered. A third party expert valuation at the outset is essential.
- CGT relief for the sellers on sale is provided in section 236(H) TCGA 1992. The conditions for relief must be met and maintained not only when transaction advisers and sellers are in situ but thereafter during the same tax year and the tax year following. A loss of relief will be costly for the sellers or for the companies if providing a tax indemnity. Training and guidance materials can protect against fading memories and the occurrence a “disqualifying event”.
A successful completion – please see www.altmorebusinesslaw.com/testimonials under “Employee Ownership Trust and Company Acquisition”.