Do you want to sell your company?

ASB Consulting is the ideal partner to assist you in all phases of the corporate buying and selling process

In the last two years in Italy we have witnessed a substantial increase in extraordinary corporate transactions, such as mergers and acquisitions (M&A), for a value that is close to 60 billion euros a year.

The greater number of acquisitions, with investment funds entering the capital of historic companies and industrial combinations, deserves an in-depth evaluation.

This situation originates from historical and structural reasons of our internal market, consisting of a multitude of companies, highly attractive by type of business, very recognized on the market and with a high level of know-how, but of medium-small size and often with a next generational step to face.

The scenario has changed rapidly in recent years, thanks to the situation of economic and financial stress deriving primarily from the constant increase in the cost of raw materials and transport, from the stringent measures to contain the pandemic imposed by the government, as well as from the contingent uncertainties. geopolitics of the war in Ukraine and the consequent increase in energy costs.

The rapid changes in the international economic scenario require companies to make decisions quickly, as never happened in the recent past, and medium-small Italian companies, hitherto the backbone of the national economic fabric, present highly vulnerable elements in such an unstable context, because they are not adequately equipped in terms of assets and finance, because they are managed by a management with adequate but limited professional skills, because they do not have a vision of the international market, because they are not sufficiently structured on an administrative level.

Many entrepreneurs, aware of the rapid changes in market paradigms and the fragility of their company in such a changing context, have made decisions, often painful, but certainly courageous, such as passing the baton to an industrial partner or a fund that, equipped with adequate resources, trained management and privileged access to the international market, is able to guarantee the competitiveness of one’s company in the near future.

The sale of a business is motivated by the combination of various factors including the buyer’s economic offer, often higher than what can be achieved in a commercial negotiation between operators in the sector (for example, the case of pharmacies, where competition of several institutional operators interested in the purchase made the valuations rise significantly).

No less important is the entrepreneur’s awareness that the small size of the company will not allow a comparison with competitors with high economies of scale.

The actual possibilities for national entrepreneurs at this time seem unique in the economic history of the last 50 years, as the availability of liquidity for acquisition investments has never been so high, rather the scarce resource are companies with good economic fundamentals -patrimonial and financial, much sought after and overvalued.

The attractive target for the acquisition by funds are manufacturing companies with turnover starting from 15 million euros, with a positive net financial exposure and with an EBITDA of more than 10%, however there is growing interest also in companies of smaller size in terms of turnover if operating in sectors considered strategic.

One of the limitations encountered in commercial transactions by potential buyers is the poor aptitude of the targets in making their management data available quickly and compatible with a negotiation, not due to an abstract and generic ignorance of the latter but because they are not very structured at an administrative level and unable to sustain an extremely accurate due diligence process, at the end of which the values underlying the transaction will be determined, already formalized in general terms in the memorandum of understanding.

There is therefore a great appetite of companies in the face of a scarcity – as mentioned above – of realities suitable for acquisition.

Why ASB Consulting is the advisor you need

ASB Consulting is an established consulting company that offers 360° assistance on the entire negotiation and subsequent business sale. We are able to satisfy every request, relieving you of all technical, bureaucratic and legal problems.

We manage the promotion and market positioning of companies in any sector alongside entrepreneurs in pirmis, but also with trusted professionals, who are able to interpret and more quickly represent the needs and desires of the owners.

Our activity is often mediated by the entrepreneur’s trusted external consultants (board advisors) who, while possessing the appropriate technical knowledge, perceive the need to have an expert at their side able to accompany them in the sales process and in the identification of qualified potential buyers, in order not to incur unpleasant surprises and waste of time which represent an element of great frustration and negative outcome of negotiations.

Thanks to our experience we will be able to guide you in the best possible way on the choice between a sale of the entire company, the sale of a single branch or a total or partial sale of shares of activities or companies and to define an overall strategy for the extraordinary operation.

History and presence on the territory
For over 15 years, our consulting company has been operating in the territories of Veneto, Emilia Romagna, Trentino Alto Adige, Friuli Venezia Giulia and Lombardy, where the search for companies interested in business sales is increasingly growing.

Stages of the activity and listing

Before starting any research activity for potential customers, we fully evaluate the business reality, regarding the economic and financial fundamentals, merits, potential and limits of the internal organization, and the type of business, so as to be able to understand the attractiveness and the right value and consequently select the best possible contacts, according to the needs represented by the owners.

After a first cognitive meeting, if the entrepreneur is serious about proceeding in the sales path of his company, a non-disclosure agreement (NDA) will be signed with which we will undertake not to disclose facts or information to third parties not interested in the transaction and then we will evaluate and select the possible scenarios with them.

If this first phase is successful, a consultancy and professional assistance contract will be formalized, which will include a fixed remuneration component according to the individual activities that will be carried out, preliminary to the sale (retainer fee), and a part of variable remuneration according to the value. total of the transaction (variable fee).

Confidentiality

Confidentiality is essential for us, only after a non-disclosure agreement (NDA) will the potential buyer know the name of the company for sale, in this way the seller is protected in all aspects.

ASSISTANCE AND CONSULTING SERVICE IN BUSINESS TRANSFER/ACQUISITION PROCESSES

The acquisition of the company

Corporate acquisition processes are often an obligatory path in the corporate growth process and are motivated by various reasons including: the acquisition of new market shares; the possibility of integrating the product offering with a new complementary range; the opportunity offered by a next generational shift; the possibility of acquiring know-how, brands and intellectual properties (patents and licenses).

In most cases, the buyer has already identified the target company, while in other cases he has only an idea of the characteristics of the potential company to be acquired in terms of location, corporate purpose, turnover and margins.

Each business aggregation operation then involves difficulties and some dangers including, by way of example: the accurate analysis of the target company with identification of strategic assets, negotiation with the owner of the target for the evaluation of the company complex and the consequent definition of the price and payment methods, the identification of the most suitable acquisition contractual scheme, the collection of the finance necessary to proceed with the operation and, finally, the corporate and management integration of the acquired company.

Transversal skills in accounting, legal, tax and corporate matters are required at every stage of the purchase.

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The sale of the company

In the course of corporate life, the time comes for the entrepreneur to think about what to do with their business.

The reasons for this reflection are many: the children and heirs do not have the interest or sufficient competence to succeed at the helm of the family business; after years of labor sacrifices you want to enhance the market appreciation of your business; the contingent market needs are no longer financially sustainable independently and it is necessary to evaluate the best partner to share a growth path; the complementarity of two companies would allow substantial economies of scale or the possibility of mutually expanding the customer portfolio with a consequent increase in value for both companies (two are valued more).

In the above scenarios, the entrepreneur’s main problem is identifying a reliable buyer or business partner, however, although apparently simple, this choice is extremely complicated. To be attractive on the market it is necessary to have some fundamental characteristics, among which volume specific turnover and adequate margins are elements of primary importance. Alongside these aspects, it is important to evaluate every characteristic of the business to predict the prospective ability to keep historical sales volumes and margins at least constant; for example, a company with excellent margins but single-client, or a licensee company whose revenues depend on a license agreement that can be revoked in the short term by the licensor, could be unattractive for a potential investor.

Another element to be evaluated is the corporate structure understood as that set of internal procedures that regulate its functioning, moreover, an efficient administrative and internal control structure are also elements of primary importance in identifying a target company by potential buyers.

For these reasons, some companies, abstractly very attractive on the market for volumes and margins, may be of little interest to a careful analysis, as (for example) not sufficiently equipped under the administrative or internal control profile, or because the revenues derive from a single customer or purchases are made from a single supplier, or because the future ability to maintain current business levels does not appear certain, or because it still has a high litigation risk profile.

The role of the advisor

As in the acquisition processes, even in the sale of a company, there are sometimes difficulties to cope with which the entrepreneur often considers convenient or necessary the assistance of experienced professionals able to support him in the actual operation of the sale or transfer process.

The external advisor does not replace the entrepreneur’s trusted professionals but, rather, his role is almost always to support the company’s reference consultants, who better than others know their strengths and weaknesses, and are necessary for the collection of the documentary set necessary to carry out the operation. Precisely through this aspect of support and mutual collaboration, the advisor and the company’s professionals are able to better address the choices of the parties involved in the extraordinary corporate transaction.

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Stages of the activity

Before starting any research activity for potential customers, it is necessary to fully evaluate the business reality, regarding the economic and financial fundamentals, merits, potentials and limits of the internal organization, and the type of business, so as to be able to understand its attractiveness and the right value, and consequently select the best possible contacts, according to the needs represented by the owners.

After an initial cognitive meeting, if the entrepreneur is serious about proceeding in the sales path of his company, a Non-Disclosure Agreement (NDA) is signed with which the advisor undertakes not to disclose facts or information to third parties non-interested in the transaction, to then evaluate and select the possible scenarios with the ownership.

If this first phase is successful, a consultancy and professional assistance contract (also known as a business transaction) will be formalized which will include a fixed remuneration component based on the individual activities that will be carried out, preliminary to the sale (retainer fee), and a part of variable remuneration based on the total value of the transaction (variable fee).

We then move on to the drafting of a teaser consisting of an advertising-informative prospectus containing the main data and company characteristics in anonymous form, which will be used by the advisor to raise the interest of potential investors.

Once the negotiation partner has been identified, before disclosing the identity of the company, he will be required to sign a Non-Disclosure Agreement (NDA) aimed at maintaining the confidentiality of the negotiation, subject to penalties.

Until now, the potential buyer will only know of the company’s public data, covered by the Non-Disclosure Agreement referred to above.

We will then move on to the drafting of a letter of intent (also called Memorandum of Understanding) which will govern the main phases and salient elements of the negotiation, identifying the perimeter of the acquisition, the price calculation model, the payment methods, the phases and documents to be analysed in the subsequent due diligence, any penalties in the event of withdrawal from negotiation by one of the parties, the retentions of part of the price to guarantee any subsequent contingencies. The MOU will be the document underlying the negotiation and will find its natural place in the preliminary deed of sale.

At the end of this phase, the due diligence will begin by the buyer which will consist of an analysis by the potential buyer of the target’s accounting, management, organizational and legal data.

The documents to be analyzed will have already been agreed in the MOU.

At the end of the due diligence, the potential buyer will disclose the results of the examination conducted, highlighting the successful outcome of the verification or any elements that could lead to a revision of the price if not to a withdrawal of the sales offer due to obvious anomalies with respect to what proposed.

Precisely for these reasons and to avoid subsequent disputes and unpleasant waste of time, it is important that the MOU accurately foresees the reciprocal contractual obligations and defines the causes of possible withdrawal from trading. An example will explain the idea better: it is not infrequent that a target presents extremely attractive public data but is unable to demonstrate the correctness of the valuation of inventories, or has not allocated potential charges to the provisions for future risks, or still has a high profile of litigation risk with financial administration or with suppliers and customers. These aspects, if they emerge after the start of the negotiation, could compromise the successful outcome of the operation at a later stage, so it is the advisor’s task to identify the vulnerabilities of the operation even before proceeding with the selection of potential buyers.

At the end of the due diligence, the values of the variables underlying the construction of the price will be confirmed or identified and the deed of sale will then be drawn up which will in the vast majority of cases concern the purchase of company shares, rather than the purchase of agency.

Precisely for this reason it is essential that the sale operation is planned well in advance, and assessed in the tax aspects with punctuality, for example, providing for the spin-off of the real estate part, the demerger of the business unit being sold, the revaluation of the shares held by individuals, the revaluation of company assets, or the transfer of the shares being transferred to a holding company.

The process described is crystallized and does not generally provide for the possibility of derogation, so that often entrepreneurs, wanting to manage this procedure independently, leave out some fundamental aspects, dazzled by a potentially indispensable offer, just as they tend to consider the advisor not fundamental for the success of the operation, often compromising the confidentiality of the operation and jointly the reputational aspect of the company.

The role of the advisor is to guide the property to lead it to the final success, coordinating a team of professionals, able to cover all the needs in every phase of the sales or acquisition process and, in the latter case, subsequently helping the ‘buyer in the business integration process of the new reality.

Conclusions

As already mentioned in the introduction, this period of general uncertainty, combined with a pantagruelian appetite for funds and asset management companies, is a moment to be seized if you imagine a better future for your company, even by taking a step back and giving up part of the control, because every journey is better and faster when you are in good company. It is no longer the time to be alone and opportunities can be seized right outside your front door, or in this case outside the corporate gates.

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FAQ

The sale of a company is an operation outside the VAT scope pursuant to art. 2 Presidential Decree 633/72, for which, according to the alternative VAT / register principle, the registration tax pursuant to art. 23 of Presidential Decree 131/86 (TUR) is applied.

Pursuant to art. 2 and 9 of the tariff, part I, attached to the TUR, for transfers of movable property and for others not included in the tariff itself, relating to services with a patrimonial content, the residual rate of 3% is applied.

For the real estate component, on the other hand, an ordinary rate of 9% is envisaged for properties in general and a rate of 12% if the company includes agricultural land and related appurtenances in favour of subjects other than direct farmers or IAP registered in the relative agricultural pension.

The new formulation of art. 20 of the TUR (reformulated by Law 205/2017) provides that the registration tax is applied according to the intrinsic nature and legal effects of the deed presented for registration, even if the title or apparent form does not correspond to it, on the basis of the elements that can be deduced from the act itself as well as regardless of the extra textual ones and the documents connected to it.

Therefore, having to consider only the legal effects of the deed submitted for registration, it cannot detect the economic purpose pursued by the parties, even if it were to indirectly purchase the company of the company being sold.

However, the Office retains the power to challenge the parties for having concluded a business sale, subject to the fulfilment of the burden of proof regarding the fact that they have pursued the purpose of concealing such a transaction behind the appearance of a sale of goods.

The conferment of assets, with the exception of the conferment of the company, is a realization operation (like the sale) pursuant to art. 9 of the TUIR, against which capital gains emerge deriving from the positive difference between the normal value of the asset (market value) and its fiscal value. Art. 177 of the TUIR provides in paragraph 2 the institution of controlled realization, according to which, the shares or quotas received following contributions to companies, through which the transferee company acquires control of a company pursuant to article 2359, first paragraph , no. 1), of the civil code, or increases, by virtue of a legal obligation or a statutory constraint, the percentage of control are evaluated, for the purpose of determining the income of the transferor, on the basis of the corresponding share of the shareholders’ equity items formed by the transferring company as a result of the transfer. The controlled realization regime does not consist, as is known, in a tax neutrality regime, remaining the realization operation, but defines a criterion for evaluating the investments received by the transferor, to quantify the contribution to the determination of the income, based on the value of the shareholders’ equity formed by the transferring company.

The expression due diligence indicates the activity of investigation and deepening of data and information relating to the object of a negotiation. The purpose of this activity is to evaluate the convenience of a business and to identify the related risks and problems, both to negotiate the terms and conditions of the contract, and to prepare adequate instruments of guarantee, indemnity or compensation.

The company due diligence consists in the analysis of all the information relating to the company of interest (e.g. characteristics of the corporate and organizational structure, economic activity carried out, market dynamics, risk factors, commercial strategies, management and administrative procedures, economic and financial data, tax and legal aspects).
With reference to the individual areas in which it carries out its information collection and analysis function, the following types of due diligence can conventionally be distinguished:

  • accounting and tax (with the underlying economic and financial analysis processes of the target company);
  • legal;
  • labor law;
  • environmental.

The target makes the agreed documentation available to the potential buyer in a data room, defining the rules and methods of access through the signing of a letter of intent also known as the Memorandum of Understanding (MOU), in which will be defined: scope of the due diligence, subjects authorized to access the data room, qualification of confidential information, obligation not to disclose the data acquired in the data room and the method of delivery and return of information.

Due diligence is not an auditing process, not even a limited one, but it trivially constitutes the mere acquisition of corporate target data made available by management and their processing for corporate purposes from the prospective purchaser’s perspective. For example, in a commercial company, particular importance will be given to the breakdown of revenues by type of product, by territorial breakdown and by clientele, analyzing with particular attention the structure and costs relating to the sales force, in particular: the revenues realized divided by individual could be analyzed. agent, associated with the relative agency cost, highlighting the margin on the sale of the product or product category.

To better understand the fundamental characteristics of the target company, it is advisable to prepare a specific guideline grid (so-called check list) to gradually analyze the various company aspects and the reference markets.

From a methodological point of view, therefore, the due diligence activity can be divided into three distinct phases:

  • preparation of a Check-List;
  • analysis of the documentation at the Data Room;
  • preparation of the final report, often accompanied by a summary table (so-called “Executive Summary”) in which only the information relevant to the transaction to be carried out is entered, such as a summary of the objectives of the due dilgence and the findings o exceptions intercepted during the analysis and the normalized EBITDA and the adjusted NFP identified as variables of the formula used in determining the transfer price.

For this purpose, the instrument of non-proportional demerger is used, for example, one of the shareholders will be the sole owner of the shares of a new beneficiary company (e.g. following a real estate spin-off), while the other shareholders will enjoy an increase in the shares in the company being split in proportion to the value of the assets assigned to the other shareholder following the split. An example will facilitate understanding: the company Alfa is owned 95% by Shareholder X and 5% by Shareholder Y. The total value of Alfa is estimated at € 1,000. Shareholder X wants to unbundle the real estate part from Alfa, which he had previously conferred, so the assembly resolves to split the real estate branch from Alfa, attributing it to the beneficiary company Beta. The value of the real estate branch is estimated at € 100. Following the demerger, the value of the split Alfa is reduced to € 900. Shareholder Y will see his share in Alfa increase by € 5 equal to the value of the Beta share that otherwise would have been due in the event of a proportional spin-off, for which the investment in Alfa will be divided as follows: € 55 (50 + 5) Shareholder Y (6.1%) and € 845 950 – 100 – 5) Shareholder X (93.9%).

At the beginning of the negotiations, the potential buyer signs a Non-Disclosure Agreement (NDA) with the seller, undertaking not to disclose or use the information acquired during the due diligence phase. At the same time, the parties will sign a letter of intent or sales agreement (Memorandum of Understanding) which will express the mutual commitment to continue with the negotiation and will contain the necessary clauses to regulate the sale of the company. The transferor will then provide the information and documents necessary for the due diligence phase which will be carried out quickly (generally 1 month). At the end of the DD we will proceed with the drafting of the deed of sale. All phases will be completed in most cases over a period of 3-6 months.

Paragraph 4-ter of Article 3 of the TUS establishes that transfers of companies or company branches, shares and corporate quotas, which are carried out (among other things) by means of mortis causa provisions in favour of descendants and/or the spouse of the entrepreneur or shareholder when certain conditions are met, differentiated according to the “object” of the transfer.

When the asset that reaches the heir because of the succession is a company or a business branch, the latter must undertake to continue the business activity for a period of not less than five years from the date of the transfer: this commitment must be formalized explicitly in the declaration of succession.

If, on the other hand, investments in joint-stock companies are transferred, the exemption is conditional on the heir acquiring or integrating the legal control referred to in Article 2359, first paragraph, no. 1), cod. civ., having the majority of the votes exercisable in the ordinary assembly. In this case too, the law imposes a five-year monitoring period

An investment teaser is a brief summary of company data aimed at a potential sales process without mentioning the name of the target company, in order to keep the identity of the company confidential. A teaser should include the company’s unique strengths, while ensuring that the company’s value is understood by a broad audience. A broader search for buyers helps the target company get the best possible deal.

When a company decides to initiate a sales process, the company’s first and foremost goal is to obtain the maximum selling price. To achieve this, the company invests investment bank or M&A consultants of the role of advisor, who prepare a professional document known as a “teaser”, in which they highlight the activity, financial data, expected growth, customers, etc. company to attract potential buyers. At this time, the company does not want to reveal its identity and prefers that all communications remain confidential. Hence, the “teaser” is prepared without revealing the company name.

The following are the important sections that should be included in every teaser:

Industry Overview: A brief description of the industry and competitive landscape in which the company operates

Business Description: The capabilities of the company, along with the nature and type of products or services it offers to customers. It must be ensured that this information is not copied directly from the company’s website, as the reader may then be able to identify the company by reading the teaser.

Location: It is important that the teaser mentions the location of the company headquarters. This allows potential buyers to think from a synergy perspective or to see a deal as a way to enter a new market.

Financial Summary: This section of the teaser is very important, as many investors are only interested in investing in companies with a certain financial profile, such as small companies with revenues of 5 million to 50 million, or large companies with revenues in the range of 100 million to 500 million. The financial summary also provides forecasts on the target company’s EBITDA margins and other financial metrics.

Investment Motivation: This section describes the company’s Unique Selling Proposition (USP) and why investors should consider buying the business. Examples of investment logic include recurring revenue, corporate clients, concentrated customer base, latest technology, proprietary platforms, patents, etc.

Customer overview: Some teasers also highlight some of the company’s customers, especially if they are major brands in the industry, to build credibility for the company.

Transaction Structure: This section deals with the nature of the transaction expected by the seller. This could be a complete sale of the business, a spin-off, a loan, etc.

About the advisors: The teaser also mentions whether the sales process is undertaken by an exclusive bank or is a joint venture of two or more banks. The contact details of the advisors are also mentioned, so that a potential buyer can easily get in touch with them for any type of information or clarification they may ask for.

In the initial stages of an M&A operation, it is normal for the parties to the transaction to conclude a non-disclosure agreement (NDA) also referred to as a “Confidentiality agreement”.

The goal of the NDA is to ensure the confidentiality of the target company’s trade secrets.

The NDA specifically regulates what information is to be delivered to the prospective buyer and how it is to be handled, in addition, the legal consequences in the event of a breach of the NDA by the prospective buyer and / or its advisors are regulated.

The form of the NDA also depends on who the potential buyer is (e.g. investor, potential strategic partner or competitor).

The content of the NDA is generally the following:

  • Confidential information: Confidential information means any information defined as such by the data subject. The seller has an interest in including in the definition of “confidential information” all the information, regardless of the type and form (written, oral, electronic), which is disclosed at all stages of the M&A transaction. Information that is included in the documents by the consultants (such as due diligence and any reports from the board of directors) should also be included in the NDA.
  • Exclusions: Non-confidential information is generally defined as follows:
    • Information publicly known at the time of disclosure;
    • Information that becomes publicly known after the conclusion of the NDA;
    • Information disclosed by the seller to the prospective buyer on a non-confidential basis;
    • Information disclosed to the prospective buyer by a third party; And
    • Information generated by the prospective buyer himself.
  • Confidentiality Obligation: At the heart of any NDA is the confidentiality obligation which specifies that confidential information cannot be disclosed to third parties without the prior consent of the seller. The information provided must be:
    • treated confidentially,
    • communicate only to a small group of people
    • used only for the purposes of due diligence and further implementation of the transaction.

    It is recommended to include in the NDA a specific exclusion from the obligation of confidentiality for information whose disclosure is required by law, by a court decision or by a specific rule. In such a case, the specific disclosure of confidential information does not constitute a violation of the NDA. However, a right for the disclosure to be informed and, if necessary, also to be involved should be regulated.

  • Contracting parties: Usually with the NDA the seller (generally referred to as “Disclosing party”) imposes an obligation of confidentiality towards the potential buyer (also “Receiving party”).
    In the case of transactions in which other parties are involved in an intermediate way, it is necessary to assess whether these should (also) be included as parts of the NDA.
    It should be ensured that persons who are not part of the NDA, if necessary, are included in the scope of the NDA. For example, in the event that the target company and the seller are initially to remain anonymous, in the context of an offer procedure, the non-disclosure agreement can be concluded with the advisors of the seller instead of the seller.
  • Recipients: It is in the seller’s interest to keep the recipient group of confidential information as small as possible and to allow the information to be passed on only to those who need to know it to review and evaluate the transaction.
    The prospective buyer will usually have an interest in being allowed to pass the information on to its employees within its affiliates and its advisors. In addition, external investors may also need to be included in the target group, possibly with the separate consent of the seller.
  • Liability: Liability for misuse of confidential information and other NDA violations should be expressly governed, for example through liability and indemnification obligations, contractual sanctions and / or damages settlement agreement. The legal consequence deriving from the law can also lead to a claim for damages despite the absence of a specific contractual provision, but in most cases it will be difficult to prove and quantify the actual damage.
  • Other Provisions: Other provisions of an NDA often include:
    • Rules on sensitive information to prevent a violation of competition law (eg obligation of the buyer to form a team to review such sensitive information, the so-called clean team);
    • Exclusivity provisions;
    • Return and destruction of confidential information and exceptions to them;
    • Non-solicitation clauses to the detriment of the potential buyer towards key employees;
    • Prohibition of contact and exceptions to the same;
    • Duration of the NDA (up to two or three common years in practice);
    • Applicable law and jurisdiction.

In an M&A process, generally before starting the due diligence, the parties involved in the transaction require the signing of a Memorandum of Understanding (MOU) in order to define the guidelines of the transaction, for example specifying the scope and objectives of the due diligence, the specific areas of investigation, the duration and the subjects involved in the due diligence process, the time limit that the parties agree to reach a definitive agreement, the exclusivity of the negotiation reserved for the potential buyer, the methodology for determining the price, the composition of the variables considered in the price formula, the safeguard clauses for the buyer in the retention of part of the price to cover contingent liabilities or non-existent liabilities not intercepted in the due dilignece phase, and more.

The MOU is essentially a letter of intent (also referred as “LOI”), ie an agreement between two or more parties outlined in a formal document, not legally binding, but an expression of the mutual will of the parties to carry out a contract.

It represents the starting point for negotiations relating to a commercial transaction, defining the scope and purpose of the talks relating to an acquisition, merger or joint venture process, and describing the broad lines of an agreement that two or more parties involved in a negotiation have achieved, together with the expression of mutually accepted objectives and expectations.

Although the MOU is not legally binding, it allows the parties to prepare for the signing of a contract by explaining the general concepts and expectations of their agreement, in fact, communicating in clear terms what each party hopes to achieve can be essential for the regular drafting and execution of the future contract, preventing any future disputes.

The biggest drawback of an MOU, however, is that it is not legally binding. Although in some cases this can be an advantage, since neither party is required to do what it says in the MOU, they can simply walk away or change their expectations. Creating the MOU can take a lot of time and planning and if one party completely changes their requirements, creating the MOU was a big waste of resources.

In a company purchase agreement it is not uncommon to insert a so-called clause. of “Earn-Out”, meaning by this term a suspension clause of the payment of the agreed price, upon the occurrence of certain requirements based on the prospective performance of the Target Company, previously identified by the parties and in the terms contractually agreed following the acquisition.

The Earn-Out clauses can be based on economic indicators such as cash flow, turnover and more often the EBIT and EBITDA, as well as they can be linked to the achievement of commercial and business objectives such as the acquisition of new orders in other countries, the acquisition of certain market shares, the approval of new products or the entry of its products into new foreign distribution chains.

A reverse earn-out clause may also be envisaged in favour of the buyer, represented by a price reduction, if the Target Company, in the period immediately following the acquisition, does not achieve the objectives agreed and considered reasonably certain by the parties and on the basis of which they had agreed on the sale price.

The term “Leverage Buy-Out” is usually understood to mean a company sale and purchase process through debt.

Generally in a Leverage Buy-Out operation the buyer constitutes a vehicle company which, after having acquired the necessary resources for the acquisition of the Target Company through financial debt, makes the purchase and then proceeds to the merger by incorporation.

This type of operation is effective only in the hypothesis of Target Company with sufficient profitability and cash flow to cope with the repayment of the financial debt underwritten in a functional manner to the acquisition operation and assumes that the Target Company is therefore characterized by a low degree of of financial leverage (debt).

The “Management Buy-Out” consists of a company acquisition by its management and is used on the occasion of a delisting of the shares or withdrawal from a market by the parent company, when the directors believe they can still operate autonomously with good growth prospects, ie when the directors buy the company with a view to future resale, often through a leverage buy-out.

Offer for advisor services for business sale and acquisition operations

ASB consulting, backed by decades of experience, proposes itself as the strategic partner in corporate acquisition/sale processes and extraordinary corporate transactions in general, offering a complete range of consulting and assistance services that cover every stage of the process:

  • identification of potential target companies according to the specifications required by the buyer;
  • selection of industrial partners or potential buyers of the business complex.
  • assistance in accounting, tax, legal and corporate due diligence procedures;
  • consultancy on the assessment of business complexes or business units subject to acquisition/sale;
  • contractual advice in defining the best and most efficient acquisition/sale strategy;
  • assistance with credit institutions in obtaining the necessary finance;
  • assistance in the management and software integration process of the acquired company in the buyer’s accounting and control system.

ASB consulting offers its assistance services also towards potential sellers, defining together with the customer the best strategies for the disposal of the property, correctly evaluating the business complex in relation to a future sale, helping the target company to improve its performance and its appeal to potential buyers and planning the future generational transition as efficiently as possible.

If you would like more detailed information on the service offered, you can write directly to the e-mail address info@asbconsulting.it or call our office at 049 8726744. We will be happy to answer your questions and clarify any doubts.
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