International Deal Making – Assisting Acquirers

QUESTION ONE – In your experience, what are the key considerations that international clients should have the front of mind when assessing a target company for acquisition in your jurisdiction?

It is imperative that international purchasers who have identified a potential target entity in Australia, familiarise themselves with the Australian legal and regulatory framework as early as possible in their assessment of the acquisition.

Shiff & Company Lawyers provides legal advice on cross-border transactions and Australian law, to offshore clients considering the acquisition of equity in Australian entities and the purchase of businesses.

The following are the most common legal and regulatory considerations for inter­national purchasers:

• Applying for and obtaining government approval for international acquisitions as required pursuant to the Foreign Acquisitions and Takeovers Act 1975 and guiding clients through the Australian Foreign Investment Review Board (FIRB) application process.
• Antitrust regulation, specifically the Competition and Consumer Act 2010 and the Australian Competition and Consumer Commission (ACCC) merger authorisa­tions process.
• Company law practices in Australia including the Corporations Act 2001 and Australian Security and Investments Commission (ASIC) reporting, residency and regulatory requirement.
• For target companies listed on the Australian Stock Exchange, the Australian Stock Exchange ASX Listing Rules.
• The Modern Slavery Act 2019 which regulates foreign sourcing of materials, components and goods and other supply chain reporting requirements.
• The Personal Property Securities Register (PPSR) regime established under the Personal Property Securities Act 2009 which regulates and maintains the database of security interests registered over target entities.
• Australia’s federal and state employment law systems and, in particular, employee entitlements as established under the Fair Work Act 2009 National Employment Standards, various Awards, Enterprise Bargaining Arrangements (EBAs) and State or Territory Long Service Leave (LSL) legislation.
• Franchise compliance considerations and compliance with the ACCC Franchis­ing Code of Conduct.
• The impact of intellectual property laws and registrations, including the Patents Act 1990 and in particular the Trade Marks Act 1995 and brand protection generally.
• The Australian taxation system including Income Tax, Capital Gains Tax (CGT) and Goods and Services Tax (GST).
• Real estate considerations such as the interpretation of leases and investigation of title to business premises.
• Banking and finance considerations, having regard to sources of offshore and local funding.

QUESTION TWO – How would you, as a professional advisor, approach the due diligence process to ensure all bases are covered prior to a sale price being agreed?

• Collaboration and communication are the keys to a suc­cessful due diligence operation. It is important for each specialist advisor to be aware of what each is reviewing to avoid duplication of advice and to maintain a co-or­dinated and consistent approach to the assessment of key issues and considerations. This also assists the parties to maintain the agreed due diligence deadlines.
• Implement a staged approach to due diligence, allow­ing for multiple rounds of questions and answers and at least one interim due diligence report. This will ensure that the client has relevant information and receives advice in a timely manner.
• Ensure that the client has time to reassess the pur­chase opportunity and to reconsider any critical issues if needed.
• We recommend that where there is a larger acquisition team advising the purchaser, a key point of contact with the vendor be established early. We prefer to take on the role of due diligence co-ordinator in Australia for our overseas M&A clients.

QUESTION THREE – Once an acquisition is agreed, what are the key clauses or warranties and indemnities you would recommend for inclusion in the sales contract?

At Shiff & Company, we do not subscribe to a ‘one size fits all’ method of acquisitions. We believe in working with our clients to tailor a sales contract that:

• reflects our client’s commercial requirements;
• minimises risk exposure; and
• addresses all issues raised in due diligence.

Depending on those considerations, we may recommend preconditions to complete a sale such as obtaining stat­utory authority for the acquisition. If in the process of due diligence, potential material threats to the target entity are identified (such as threatened litigation) we would be likely to recommend rigorous indemnities to protect the buyer, post-completion.

Tips for completing a successful cross-border acquisition

Engage subject matter experts

As lawyers, we provide legal advice on the Australian requirements for the acquisition. We find that engaging accounting advisors with particular industry experience in Australia are invaluable in foreign acquisitions. There may also be roles to be played by technical and other industry advisors. Australia’s regulatory framework in certain industries, such as manufactur­ing, vary state to state and experts with applicable jurisdictional experience in the field will have the best knowledge of the regulatory frameworks specific to target entities.

Be flexible

In our experience, a deal can change overnight and both buyers and sell­ers should be flexible and adjust timeframes to meet such changes. Where information is provided in due diligence which materially changes the value of the target entity, the parties may still be able to reach a deal albeit on different terms than originally envisaged. At Shiff & Company, we take a commercial view of all transactions and are happy to work with clients to look at all options available to a purchaser.

Plan for post-completion

There are many matters to be attended to post-completion. Be it the registering of business-related interests, passing of resolutions to appoint new directors, establishing new subsidiary companies, complying with statutory obligations under the Corporations Act, or updating employment agreements and trade terms. The work undertaken post-completion can be as vital as the acquisition itself. By working with company secretaries, accountants and managers, Shiff & Company can make the process pro­ceed smoothly, providing ongoing necessary advice to buyers long after an acquisition completes.

This excerpt was taken from the IR Global Guide: International Deal Making: Assisting Acquirers. To view the full publication, please click here.