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?

Once a target company is identified, the key issues to consider for an acquisition in New Zealand are:

• The local statutory approvals required (if any) to greenlight the acquisition.
• Detailed consideration of the purchaser’s proposed future tax and other treat­ments of the target company’s profits.
• The need for careful due diligence on the target’s key people.

Required statutory approvals in New Zealand may include, but are not limited to – Overseas investment controls, competition law regulations, the New Zealand Com­panies Takeovers Code and industry-specific rules (e.g. dairy industry regulations).

Under New Zealand’s Overseas Investment laws an overseas person, as defined, must obtain consent from the New Zealand Government to acquire certain busi­ness or property assets, or take control of 25 per cent or more of the shares in a New Zealand company.

Notwithstanding the complexities of doing business in different jurisdictions, expert taxation due diligence is critical. This relates to both the target company and the purchaser’s proposed future taxation and profits treatment of the target company (transfer pricing and foreign company investment issues). There is no point in acquiring an offshore business if any profits cannot be repatriated to the purchaser in a tax-efficient manner.

The other critical consideration is carrying out detailed due diligence on the target company’s key people. The motivations and future goodwill of the target’s key personnel must be clearly stated and understood by the purchaser of a business in a country it may know little about. Tying the key personnel to the business for a period, post-acquisition is usually important. Post-settlement purchase price workout terms are also often used to ensure the key personnel stay in place and are motivated to make the acquisition a success.

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?

The acquirer’s New Zealand lawyers will be expected to lead the due diligence team where a New Zealand domiciled company is the acquisition target.

Professional due diligence is central to any cross-border acquisition and will involve a review of all the relevant target company information by a team of experienced advisors brought together by the local lawyers – including financial, tax and HR advisors, the purchasers’ key executives and other experts.

The importance of proper organised due diligence cannot be understated. The risks and benefits of the acquisition must be factored into a clear costs/benefits model, to first ascertain an appropriate purchase price, and then progress the proposed acquisition to the point of final commitment (or not).

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?

Key terms in any contract to acquire a New Zealand-based business include:

• Clear definitions of the assets or shares being acquired.
• The purchase price and how and when it is to be paid (including any workout and/or retention terms).
• Employment terms – covering the treatment of the target company’s personnel post-settlement.
• Which law is to apply to the purchase agreement and any disputes.
• Good faith dealings term binding all parties.
  • Clear vendor and key vendor personnel warranties and Indemnities, including as standard: Financial statements and prior turnover warranties
  • Material Adverse Change (MAC) warranties
  • Statutory approvals and consents warranties
  • Full and proper disclosure warranties and indemnities
  • Employment warranties
  • Appropriate taxation warranties and indemnities
  • IP ownership warranties.

Tips for completing a successful cross-border acquisition

Get the right team of advisors in New Zealand and rely on them

Go into the acquisition with your eyes wide open, undertake thorough due diligence and understand exactly what you are buying

Know when to walk away.

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