Whilst the content of any asset purchase agreement (APA) will be deal specific, and the various components will vary in importance from transaction to transaction, the following questions should be asked in considering, preparing and negotiating any APA.
Preliminary – heads of terms, due diligence and third party consents
Is there a letter of agreement or heads of terms reflecting the commercial intentions of the parties? If so, this should be brought to the attention of the legal advisors (if those advisors were not involved at the initial stages).
Typically buyers will arrange for commercial and legal due diligence into the target business. Any recommendations arising from the due diligence exercise should be incorporated into the APA through pre- and post-completion actions and/or the inclusion of bespoke protections.
Due diligence may reveal that third party consent to the sale and purchase of the business is required. For example, depending on the value of the transaction, clearance may be required from the Competition and Consumer Protection Authority, or if the target business operates under a licence, approval may be needed from the relevant licensing authority.
Who will purchase the assets?
Will you create a special purpose vehicle for the acquisition or will the assets be transferred to an existing entity?
Financing
How will the purchase be financed? If bank or other external finance is required, how will this affect the timing of the transaction?
Operation of the target business before completion of the purchase
If third party consents or financing issues will cause a delay in completing the transaction, should the seller be required to operate the business in a certain manner? Are there certain actions of the seller that could result in the business losing value prior to the purchase and that may diminish the goodwill of the target business?
Have the transferring assets been adequately and accurately described in the APA?
You should carefully consider what assets you wish to purchase and include a list of these in the APA. A separate list could also set out what it is agreed should be excluded from the sale (if anything).
What type of assets are you purchasing?
Does the list of assets to be transferred include debts, property, goodwill, intellectual property and/or contracts? If so, additional legal documentation may be required to give effect to the transfer of those assets.
Do you intend to use the business name after the purchase has completed? If so, the business name should be included in the list of assets to be transferred.
What about employees of the target business?
Does the seller have employees and do they work in the target business? The transfer of a business can trigger the provisions of employee protection legislation and can result in the automatic transfer to the purchaser of certain employees. In addition there are requirements to notify and consult with employees.
What liabilities are to be transferred?
The APA should be very clear about which liabilities will transfer and which will remain the responsibility of the Seller.
How will the purchase price be determined and paid?
Will the total purchase price be known before completion of the transfer of the business, or is there likely to be movement in the value of any of the assets to be transferred (e.g. stock) that would require the parties to agree the payment price on the date of completion as opposed to earlier? Should any element of the purchase price be paid at a date after completion e.g. following a stock take or dependant on income accruing from the assets?
Has thought been given to restricting certain actions of the seller post-completion of the APA?
Consider whether it is necessary to restrict the seller from competing with the transferring business and from soliciting employees that have transferred to the buyer for a certain time period after completion.
Tax
Whilst tax is a bigger issue for the seller, you may have to pay stamp duty on the market value of the assets acquired. Not all assets are subject to stamp duty and you should seek advice as to what assets are stampable and at what rate must stamp duty be paid. Also consider whether the transaction is subject to value added tax.
