Page 19 - SONEPAR 2021 - AcquisitionBook

PHASE 1:
STRATEGIC ANALYSIS
2.4
PHASE 2:
EXPLORATORY PHASE
PHASE 3:
LETTER OF INTENT
PHASE 4:
DUE DILIGENCE
PHASE 5:
SALE & PURCHASE AGREEMENT
PHASE 6:
CLOSING
PHASE 7:
INTEGRATION & FOLLOW-UP
DEAL WITH MINORITY SHAREHOLDERS
When making acquisitions, SONEPAR’s objective is to obtain full control of the target. However, in some cases, we may want or have to keep a minority shareholder (e.g. to benefit from the existing owner’s cooperation and expertise or to take account of local regulations or M&A practices).
When minority shareholding is contemplated, the SPA will be completed by a SHAREHOLDERS’ AGREEMENT to set out the principles and rules for the participation of the minority shareholders in the life of the acquired company. In particular, the SHAREHOLDERS’ AGREEMENT will address:
➜ the internal relations between shareholders (governance);
➜ the rules pursuant to which a shareholders may transfer its shares (e.g. consent and preemptive rights);
➜ the organization, decision-making and running of the target 2 company and its organizational structure (e.g. financing of the Company, dividends policy, investment decisions, budgets, hiring
policy, External Auditors, etc.);
➜ PUT and CALL OPTIONS;
➜ management and franchise fees.
The BUSINESS CASE shall describe how these items are intended to be dealt with for review and approval by the INVESTMENT COMMITTEE.
Deal with minority shareholders
In a SHA, a special attention must be paid on:
➜ PUT & CALL OPTIONS: A valuation of the target company will always be needed. The period until the exercise of these options for the remaining shares should not be too long.
It is highly recommended to opt for a valuation formula based on a larger period than just one-year EBIT or net result. Also, it is highly recommended to use 12 months average NET DEBTS instead of just December situation in case the formula uses this ratio. EBIT and NET DEBT (example before or after IFRS-16) should be very clearly defined in the SHA;
➜ Management fees and franchise agreement: The SHA should cover the treatment of the management fees and franchise agreement. The general rule would be to apply the country rules concerning management fees and franchise agreement that are usually a payment to the holding from the first year after the acquisition;
➜ Dividends policy: The question concerning the distribution of dividends will be handled on a case-by-case basis. The general rule for dividends policy is the distribution of dividends of 50% of the previous year’s net profit with a minimum of a third in certain cases;
➜ Financing rules: The financing of the Company will be determined in local currency with local conditions.
If any guarantee is needed it will be given proportionally by all shareholders.
Maximum gearing will be fixed to a ratio of 1. There could be exceptions like in case of acquisitions financed by the target company, in which case the ratio may reach a maximum of 1.20 but it will be reduced back to 1 after one year. If this limit of maximum gearing is exceeded there will be capitalization of the target company in order to reach a gearing under 0.75.
In such case, there could be different possibilities for the capitalization:
• at net value, or
• with the same valuation as previously made for the target company.
TO KEEP IN MIND
➜ This exploratory phase is critical to obtain a good and objective picture of a potential acquisition.
➜ This phase consists in getting as much internal information as possible on the target company after the signature of a
CONFIDENTIALITY AGREEMENT.
➜ The BUSINESS CASE is a key document that will describe the key features of the proposed transaction (business overview, pricing, prospects, integration, etc.). The ACQUISITION SHEET is the support document used for the valuation of the target.
SONEPAR - ACQUISITION MANUAL - 2021 - FOR INTERNAL USE ONLY 17