Advice on purchase agreements from a finance perspective

The successful execution of a corporate transaction and the realisation of the envisaged transaction value depend on several factors. Starting with the regulations on the transaction structure through to the determination of the purchase price and the guarantees, which must be set out in detail, effectively and robustly in the sale and purchase agreement (SPA). It is at least as important to ensure that the contractual calculation of the price works as agreed and that the issues identified in the due diligence are taken into account.

Regardless of whether locked box, completion accounts, earn-out or a combination of these are agreed, each of these mechanisms can have a significant impact on the transaction value. It is therefore difficult to determine the optimum purchase price and successfully complete the transaction without competent finance and accounting expertise.

Our team consists of experienced purchase agreement negotiators, due diligence specialists, forensic accounting and M&A dispute resolution professionals. It brings a strong mix of expertise in all aspects of the transaction process.

Our services

We support you at every stage of the transaction - whether before negotiations begin or during negotiations - right through to successful completion:

• Advice on structuring the transaction with regard to pricing and price adjustment clauses from a financial perspective (locked box or completion accounts) or other variable purchase price components (earn-out)
• Reviewing the wording of the financial guarantees, including the balance sheet guarantee, including the question of whether they are appropriate in terms of scope and amount in light of our experience with standard market practice.

Under the locked-box model, a fixed date is set on which the purchase price is determined. The transaction is then carried out at this price. The seller bears the opportunities and risks arising from changes in the company value between the reference date and the closing date. It is therefore important to ensure the accuracy and relevance of the financial information on the locked-box closing date.

This requires a focus on the definition of unauthorised value outflows (leakage) and permitted value outflows (permitted leakage). This ensures that the definition of unauthorised outflows is narrow and that permitted outflows include the necessary transactions. It is also necessary to analyse the daily cash profits or interest payments (locked box interest/ticker), including the question of whether it is clear how they are calculated (locked box paper).

In contrast to the locked-box model, the purchase price under the completion accounts method is only calculated after the transaction has been finalised based on the company's actual financial situation. It is important to clarify the rules for preparing the completion accounts, including the applicable accounting principles and procedures, in order to achieve reliable results. This includes:

• determining whether there is a clearly defined structure for the price adjustment calculation and whether the accounting definitions are used consistently
• commenting on/optimising the principles for preparing the completion accounts, including the applicable accounting policies.
• Definition of the accounting rules specific to the purchase agreement (Specific Accounting Principles and Accounting Hierarchy).
• Defining the basis for estimating the purchase price or quantifying the amount to be paid at closing.
• Definition of a practicable procedure for the preparation and reconciliation of the closing accounts and the settlement of purchase price disputes.