Page 33 - SONEPAR 2021 - AcquisitionBook

PHASE 1:
STRATEGIC ANALYSIS
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
5.1.2 LOCKEDBOX
Select the appropriate pricing mechanism
The LOCKED BOX mechanism provides an equity price to be calculated based on a recent historical balance of the target company before signing of the SPA (LOCKED BOX date) rather than a future date (CLOSING date). Therefore, there is no possibility for the purchaser to adjust the price after CLOSING but for limited exceptions linked to “leakages” and other contractual provisions specified in the SPA.
The parties must agree on what constitutes a “leakage” and a “permitted leakage”. The seller will provide an indemnity in favor of the purchaser in respect to any leakage between the LOCKED BOX date and the CLOSING date.
➜ Examples of leakages:
• dividends and distributions or return of capital;
• any “transfer of value” to seller;
• deal bonuses to employees;
• fees or expenses incurred in connection with the transaction;
• non-ordinary course intragroup payments or payments for service;
• transfer of assets or liabilities assumed;
• waiver of amounts owed by the sellers.
➜ Examples of permitted leakages:
• intragroup payments in the ordinary course of the business
and on arm’s length-terms;
• payment of employee wages in the ordinary course of the business.
➜ The LOCKED BOX mechanism usually implies:
• simplicity and lower costs to the purchaser:
• final price is known in advance,
• no post-CLOSING adjustments;
• a risk of business deterioration between LOCKED BOX date
and CLOSING date.
➜ The LOCKED BOX is not recommended in case of:
• •
limited opportunity for DUE DILIGENCE; complex carve-out situations.
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SONEPAR - ACQUISITION MANUAL - 2021 - FOR INTERNAL USE ONLY 31