Mandate
The document fixing the role and remuneration of FMV & ASSOCIÉS during the performance of its services is referred to as the "Mandate". The Principal is the Client and FMV & ASSOCIÉS acts as a Proxy for him.
Warranties
In most acquisitions, the Buyer wishes to obtain certain protections from the Vendor regarding the performance and operations of the target in the pre-acquisition period (the origin of the damage being financial, fiscal, environmental, etc...)
This protection is set out either in the SPA or, in civil law countries, in a specific Representations & Warranties contract. Whilst the drafting remains under the primary responsibility of the respective lawyers, FMV & ASSOCIÉS will assist in identifying possible economic weaknesses in sensitive areas.
We can also assist in reviewing the contents of a Disclosure Letter which has the effect of limitating the responsibility of the Seller in certain areas.
The Representations & Warranties contract will detail all possible events which entitle the Buyer to bring a claim and frequently will also include a cap (linked to the price) on Warranties and Indemnities/Representations and Warranties as well as a reasonable deductible/de minimus claims threshold.
Another possibility is to take out an insurance policy to protect against such risks.
LBO / Leveraged Buy Out - MBO - MBI
Means a leveraged acquisition, using debt financing on top of buyer's own funds. The debt is offered by banks and financial institutions.
The generic term LBO covers different situations such as :
- MBO (management buy-out) : the acquisition is made by Investors (often Investment Funds) jointly with the existing managers of the company.
- MBI (management buy-in) : same as above, except that managers are newcomers to the company.
Sale & Purchase Agreement
Means the primary contract signed by the parties and regulating the acquisition. Where the SPA is not subject to conditions precedent the date of signature (and often transfer of property), it will also be referred to as closing or completion.
The SPA includes all documents describing the acquired assets, their price, the Reps & Warranties documents.
Letter of Intent - Indicative Offer - MoU / Memorandum of Understanding
During an acquisition process, one of the first major steps is, for the Buyer, to make a first indicative offer to the Seller. With the client's consent, FMV & ASSOCIÉS will prepare and draft such a letter (possibly in conjunction with the Buyer's lawyers) indicating under which conditions (perimeter, indicative price, agenda, audit process...) the Buyer intends to commence negotiations.
At this stage, this Letter of Intent / Indicative Offer is almost always non-binding for the Buyer, or possibly under certain binding conditions such as confidentiality.
In some cases, this is followed by a Short form document comprising key legal and commercial terms and signed by both parties. This document is often referred to as Memorandum of Understanding (MoU), Termsheet or Heads of Agreement.
Final Offer
Means the last offer made by the Buyer after having performed due diligence (notably financial and fiscal). Such an offer is more precise and includes the price. The Buyer may choose/or be required to submit a "binding" offer but frequently this often still includes conditions precedent to Closing in order to properly protect the Buyer during the interim phase, for example the agreement of a satisfactory SPA contract.
Memorandum
In the process of the acquisition process, one of the first steps which FMV & ASSOCIÉS undertakes is to write a report setting out an overview of the target and its assets for sale. This is the Memorandum. It contains, inter alia :
- Business description, history, shareholding,
- Market(s) and competition,
- Operations of the company : clients, suppliers, employees, R&D...
- Financial analysis : Balance sheet, P&L, cash-flow...
Confidentiality Agreement
This means any document signed by the parties ensuring confidentiality of non public data exchanged between Buyer and Seller (including advisors). This document may contain a fixed term and should always include a choice of jurisdiction to resolve disputes. This type of agreement is typically signed when a memorandum is given to a potential buyer and/or when confidential information is exchanged.
Data Room
Collection of data, gathered in one room as paper copies and/or Internet access to a virtual library, giving information relating to the company and the associated topics to be analyzed during the acquisition process, notably (such a list not being exhaustive) :
- Articles of association, shareholders, corporate information,
- Accounts and audit reports,
- Products and markets (customers, distributors, etc...),
- Tax matters,
- Employees and social matters,
- Legal affairs (legal commitments, etc...),
- IP/IT : patents, know-how,
- Real estate,
- Environmental affairs.
The level of details given in the Data Room depends on the Seller and also the level of detail requested by the Buyer's advisors in the form of information requests.
