Derek Pocock

Partner

Isaac West

Partner

22 January 2015

The anatomy of a deal

Mergers & Acquisitions

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Key Points

■ Share or asset sale?

■ Anatomy of a deal

□ Milestones and timing

□ Documentation

■ Pulling it together

□ Tips on managing the process and negotiation techniques

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Share or asset sale?

■ Share sale

□ Procedurally quicker & easier

□ Buy all liabilities (more due diligence / warranties)

□ Employees come with

■ Asset sale

□ Pick and choose assets / employees

□ More control over liabilities (less due diligence)

□ Assign or transfer everything

□ Licences etc

□ What happens to target?

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Share or asset sale? (cont)

■ Tax issues

□ Tax losses

□ GST

□ Stamp duty

□ Tax sharing arrangements

□ Target shareholders

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Anatomy of a deal

■ Confidentiality agreement

■ Heads of terms

■ Due diligence

■ Acquisition agreement

■ Disclosure letter

■ Others

□ Board appointments / employment agreements

□ New constitution

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Stage 1 – reaching a consensus

■ Confidentiality agreement

□ One way or two way?

□ Announcements

□ Black box sensitive information

□ Difficult to police and enforce

■ Heads of terms

□ Lock-in key terms

□ Generally non-binding

□ Exclusivity (binding)

□ Due diligence period

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Stage 2 – is everything in order?

■ Due diligence

■ Buyer’s perspective

□ Understand risk (and reward)

□ Assist integration

■ Seller’s perspective

□ Get your house in order before you invite the buyer to conduct due diligence

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Stage 3 – the nitty gritty

■ Acquisition agreement

■ Purchase price

□ Earn-outs

□ Escrow

■ Warranties

□ Limiting warranties

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Stage 3 – the nitty gritty (cont)

■ Conditions

□ Change of control

□ Other third party consents

□ Employment agreements

□ No material adverse change

□ Due diligence

■ Golden handcuffs

■ Restraint of trade

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Pulling it together – some takeaway tips

■ Preparing for negotiations

■ Take reasonable positions and focus on interests

■ Trade, don’t give

□ Particularly if multiple stakeholders

■ Use time wisely

■ Resolve impasses rather than scoring points

■ Learn the tricks of the trade

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Tip no. 1 – Prepare Prepare Prepare

■ Define what you would like to achieve from the negotiation

□ must achieve, must avoid, wish list

■ Prepare issues lists and discuss your negotiating strategy with your legal provider and your team and assign roles (Leader, Summariser, Observer)

■ Being prepared allows you to

□ determine bargaining zone (area of overlap)

□ focus on listening and reading body language etc.

■ Develop your BATNA

■ Consider the other sides underlying drivers and objectives by analysing the same criteria and any available material

■ BUT keep an open mind and play the game in front of you (beware of assumptions)

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Tip no. 2 – Focus on interests, not positions

■ Arguing over positions

□ produces unwise agreements – fails to consider the real interests of the parties

□ is inefficient – difficult and time consuming

□ endangers ongoing relationships – anger and resentment may result from the process

■ Ask 'Why?' not 'What‘

□ behind every proposal lurks a need

■ Ask direct questions and listen to the answers

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Tip no. 3 – Be a trader not a giver

■ Generosity creates greed not gratitude

■ Goodwill is generated from doing the deal – not from giving the store away along the way

■ Take on notice – package – trade

■ When packaging end on a positive note

□ if you were prepared to accept ..., we may be prepared to ....

■ But do not defend the undefendable or argue over meaningless points

□ lose credibility – weak arguments dilute strong ones

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Tip no. 4 – Use time to your advantage

■ Trying to create urgency where there is none can alter the bargaining power

■ Set realistic time frames and meet them

■ Know the right time to bring up difficult issues

□ early on in the negotiation a point may be a deal killer

□ at the eleventh hour, the other party may concede

■ Explain internally the time required to ensure a smooth process

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Tip no. 5 – Become an expert at resolving impasses

■ Be a deal maker and a facilitator

□ keep your eye on the end prize

■ Resist the urge to strike back

■ Seek an adjournment

□ consider postponement of the issue – it may be easier to tackle the issue at the eleventh hour

■ Step to their side

□ listening is cheap

□ paraphrase and ask for corrections

□ acknowledge their point and feelings

□ acknowledge your differences with optimism

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Tip no. 5 – Become an expert at resolving impasses

■ Don’t reject, reframe

□ ask for your opponent’s advice

□ deflect attacks – ignore or reframe as a friendly jibe

■ Build them a golden bridge

■ Bring them to their senses, not their knees

□ ask reality testing questions

□ demonstrate your BATNA

□ remind them of the golden bridge

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Tip no. 6 – Learn the tricks of the trade

■ Dozens of tricks but generally grouped into three categories

□ obstructive (Stone Walls)

□ offensive (Attacks)

□ deceptive (Tricks)

■ Key to neutralising is recognising the trick

□ recognise a stone wall (less likely to assume your opponent is inflexible)

□ recognise an attack (less likely to fall prey to fear and discomfort)

□ recognise a trick (less likely to be taken in by the deception)

■ Name the game – disperse the spell

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Contact

Derek Pocock

Partner

T +61 7 3233 8628

E dpocock@mccullough.com.au

Isaac West

Partner

T +61 7 3233 8576

E iwest@mccullough.com.au

Disclaimer: This presentation covers legal and technical issues in a general way. It is not designed to express opinions on

specific cases. This presentation is intended for information purposes only and should not be regarded as legal advice. Further

advice should be obtained before taking action on any issue dealt with in this presentation.