Buy-side transactions | KPMG | UK
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Buy-side transactions

Buy-side transactions

How we deliver value to bidders.

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Associate Partner | Deal Advisory | Commercial Deal Negotiation | SPA Advisory | Financial Due Diligence

KPMG in the UK

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Business
Equity value and price structure engineering
 
We work closely with our clients and their legal advisers to understand the value issues in the balance sheet, develop the negotiating brief and valuation approach for these, and then develop the detailed response in the draft sale and purchase agreement, including:
  • Quantifying and agreeing an appropriate net asset or “normal” working capital target
  • Considering debt and debt-like items and their appropriate treatment for value
  • Identifying other areas of price adjustment required, and developing and agreeing an appropriate approach
  • Dealing with earn-out issues
  • Approach to contingent liabilities through price or indemnity provisions, and level of appropriate price retention or escrow
  • Value and pricing-in transitional service agreements, and consistency with the wider price and value equation

Agreement vetting and drafting support, focussing on the financial aspects of the SPA

We have deep specialist knowledge as to drafting approaches that work and those that do not in almost any deal situation, off the back of over a thousand deals, and significant experience determining disputes resulting from poorly drafted agreements. We combine this with an understanding of the detail of each deal to rapidly provide feedback, and detailed drafting support, to clients and their legal advisers, typically covering: 

  • Definitions of accounting terms and financial measures, and a robust and clearly defined structure to the price adjustment calculation
  • Definitions of the business, assets and liabilities to be included and excluded from the deal (on asset or carve-out transactions) and how this matches the intended financial and operational perimeter of the deal 
  • Basis of completion accounts, including detailed framework of accounting policies and specific rules to be applied
  • Basis for estimation or quantification of amount to be paid at closing
  • Process for preparing and determining completion accounts quantification of the price adjustment
  • Wording of financial warranties and indemnities
  • Tax deed and tax indemnity provisions
  • Leakage and permitted leakage definitions and provisions on a locked box transaction
  • Settlement of intercompany loans and balances in a manner consistent with the price provisions
  • Schedules to the agreement setting out the form and basis of the completion accounts and price adjustment calculation
  • Level of cap, basket or de minimis to claims

Negotiation support

Our work frequently involves development of the negotiating brief around aspects of the equity price, price adjustment mechanism, and financial aspects of the SPA, supporting clients in the negotiation of these areas, or to negotiating on the detail in these areas with the advisers to the other principal.

Our approach to negotiation recognises that our area of focus is only part of the wider deal, and we seek to understand this wider dynamic and ensure our advice and approach take full account of it. For example, buyers and sellers often have to continue to work with each other long after the agreement is signed to deliver on the deal value for both of them. This is far too often forgotten by advisers focussed on driving an aggressive deal position that leaves a broken relationship and a lack of trust between the principals.

Whatever the deal issue, the odds are we’ve seen it before. We understand the arguments likely to be advanced by the buyer and the seller, and how often each of these succeed, for a wide range of common, and not so common, contentious areas in the bridge from enterprise to equity value, and  areas of contractual drafting.

As a result, we are able to rapidly assess the range of likely outcomes in a given situation, and develop and deliver intelligent negotiating strategies to optimise the result as part of the wider deal package.

Our specialist team is of sufficient size that we are able to further specialise in particular sectors, and this detailed knowledge of market practice in deals extends to this level, examples include: the financial sector, oil and gas, energy, automotive, technology, ICT, retail and consumer products deals.

Leakage review

Whilst locked box transactions do not provide for post deal value adjustment, they do allow for claims in relation to leakage in the period from the locked box balance sheet to completion. As locked box arrangements become more prevalent, and are applied to more complex carve-out situations, the risk of leakage occurring (by accident rather than by design) as a result of a failure of intended carve out, separation and ring fencing procedures likewise increases.

We help clients identify and secure appropriate value to compensate for leakage through focussed, rapidly executed reviews of trading and balance sheet changes in the locked box period and around completion. In particular, our approach recognises the demands on management time in the business during the period immediately following completion, and we focus on working around management availability and leveraging as much as possible off other completion work streams to minimise the demand on management time. 

Completion accounts support

Where a deal includes a post-completion price adjustment, for debt, working capital, or other areas, we support clients in preparing or reviewing the completion accounts and the draft price adjustment calculations.

We bring a rigorous focus on deal value to this element of our work. It is important to remember the completion accounts prepared for this purpose are separate from any other financial reporting and governed solely by the terms of the SPA.

Our experience enables us to rapidly identify potential adjustments and value issues, provide clear and concise views on the requirements of the SPA, and whether the adjustment is required to deliver the price equation the parties understood they had signed up to.

We then support discussion and negotiation of any matters disputed by the other party.  As with pre-deal negotiation, we aim to deliver intelligent, robust negotiating strategies that take full account of the wider position and relationship between the parties.

Dispute resolution

Occasionally, issues arise on transactions which are so fundamental they cannot be resolved through bilateral negotiation. In such circumstances, we work together with our forensic dispute resolution team to assist clients' in written and oral submissions to the expert.

To find out more, please contact Graham Armitage, Shelley Reader or Mark Rumble. 

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