Page 23 - SONEPAR 2021 - AcquisitionBook

PHASE 1:
STRATEGIC ANALYSIS
3.3.2
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
Draft a LOI
M&A TRANSACTIONS WITH BIDDING PROCESSES
In case of acquisition processes through brokers, the solicited purchasers will usually receive, together with the INFORMATION MEMORANDUM, a PROCESS LETTER setting out the bidding process that will be applied.
Usually, no exclusivity is granted upfront, and the seller and its broker will receive INDICATIVE OFFERS (i.e. simplified LOIs with basic terms) from several purchasers according to the instructions set forth in the PROCESS LETTER. Purchasers whose INDICATIVE
3.3.3 LOI DRAFTING GUIDELINES
PURCHASE PRICE
The price proposed in the LOI is based on the information on the target that has been collected at this stage.
➜ Price indications are often given on a debt-free, cash-free basis, i.e. at the level of the ENTERPRISE VALUE. The methodology to determine the purchase price will be indicated in the SPA.
➜ If the price for the shares is a fixed amount, or based on a formula, there should be some possible adjustments that could be discussed with the seller:
• a minimum equity amount to be confirmed by the DUE DILIGENCE: if this minimum amount is not reached, then the final price shall be reduced by the difference amount,
• a maximum amount of NET DEBTS to be fixed: the final price shall be reduced by the difference if this maximum is over- passed,
• a minimum EBIT for the last year to be confirmed by the DUE DILIGENCE: if this minimum amount is not reached, the final price shall be reduced according to the formula based on the EBIT.
➜ The other possibility is to negotiate a purchase price based on the book value of the equity plus a fixed amount for the GOODWILL.
OFFERS are retained by the seller will typically be able to attend a Management Meeting and to have access to basic DUE DILIGENCE, which will allow them to send binding offers.
3
REGULATORY FILINGS
Before the signing of the LOI, the purchaser shall check whether the acquisition will need any competition authority and/or other regulatory approval.
All merger/regulatory filings must be reviewed by the HQ Legal team for consistency purposes.
SELLER’S NON-COMPETITION UNDERTAKINGS
The minimum duration of sellers’ undertakings shall be 18 months.
Always check with your Regional or Country legal counsel (or external legal advisor) what is the local applicable legal regime and the maximum authorized duration.
TO KEEP IN MIND
➜ LOIs are normally not binding; however, they represent an important milestone in the M&A process as they pave the way for DUE DILIGENCE.
➜ All LOIs must be reviewed and vetted by the HQ M&A and Legal teams before signing. ➜ No LOI may be issued without prior INVESTMENT COMMITTEE approval (“GO”).
SONEPAR - ACQUISITION MANUAL - 2021 - FOR INTERNAL USE ONLY 21