Chapter 7 - Corporate Transactions

Abstract

This chapter focuses on various corporate transactions such as acquisitions, mergers, and disposals. An acquisition may involve the purchase of shares in another company or the purchase of a trade and related net assets. Clear parameters should be defined for the type of business that is being sought and the level and form of consideration that can be offered. Professional advisers or business brokers can be used to help in identifying potential targets and initial contact may be made by the company or by the advisers. The advisers to the potential acquirer are usually responsible for preparing a first draft of the acquisition agreement and investigating accountants should be engaged to carry out detailed due diligence work and prepare a written report on the target company. Management buy-outs and management buy-ins are special types of acquisition. In a management buy-out, some or all of the directors and senior managers of a business form a new company to buy-out all or part of the existing business such as a particular subsidiary or division of a group. A management buy-in is a similar arrangement, except that the acquiring team does not come from within the business to be acquired. Company law and accounting standards set out stringent criteria that must be met before an acquisition can be classified as a merger. Under merger accounting, the accounts of the new entity are prepared as if the combining parties had always operated as a single entity. There are various reasons why the directors might decide to dispose of a business unit, or part of the existing business. For this, professional advisers should be consulted so that tax, legal and accounting issues can be considered in conjunction with economic and commercial ones.