In brief - Seek legal and financial advice once the target
business is identified
While each acquisition should be carefully analysed and
considered on its own merits, there are a number of steps that are
typically involved in an acquisition of a private company in
Australia. Understanding this process, as well as the key
differences between an acquisition of shares and an acquisition of
a business, is useful to companies considering this prospect.
Acquiring a business involves deciding on a share or asset
Where a business is operated through an Australian company, a
very important consideration is whether the buyer purchases shares
in the company from the shareholders or whether it purchases the
business and assets of the company directly from the company
Factors that will influence the structure of the acquisition may
liabilities of the company
assets of the company
any litigation that the company is involved in
regulatory approvals and industry specific licences
whether the buyer has an existing business that it wishes to
transition the target business into
whether the company has a large number of contracts that would
need to be transferred
Five typical steps involved in a business acquisition
Identify the business the buyer wishes to acquire.
Appoint legal, accounting and industry experts.
submits a non-binding indicative offer to the seller.
enters into a confidentiality agreement with the seller.
conducts due diligence of the company. Refer to publicly
available information, industry knowledge and your advisers. It is
also essential to seek information from the seller directly through
a written request.
considers necessary approvals, particularly with respect to
finance and the Foreign Investment Review Board.
Option: enters into an exclusivity agreement with the seller
for the period of the due diligence, so that the buyer is the sole
party with whom the seller negotiates the sale of the
After due diligence has been completed, and if the buyer
decides to proceed with the transaction, the buyer determines its
preferred structure for the acquisition (but noting that, often,
the preferred structure will have been decided already by the
seller) and enters into a Heads of Agreement with the seller which
sets out all of the key commercial and brief legal terms of the
acquisition. The aim of the Heads of Agreement is to ensure that
there is less room for unexpected disagreement when the full legal
documentation is negotiated.
Prepare, negotiate, finalise and sign sale documentation.
Warranties and indemnities are nearly always included in the sale
agreement to protect the buyer against potential risks associated
with the transaction.
Do all things necessary to prepare the shares or the assets to
transfer to the buyer for completion, and complete the acquisition.
Once the sale or transfer has been completed, the buyer and seller
may have further obligations to satisfy under their agreement.
The pros and cons of share acquisition vs business
Notes: The author gratefully acknowledges the contributions
of Alana Barlow and Michael Abrahams in the drafting of this
Do not depart from the contract terms, or encourage the other party to do so, unless you plan to alter the contract.
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