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Advanced Financial Issues in Acquisition Agreements

2 Part Course  |  Learn about Cash Free Debt Free, the Working Capital Adjustment, the Locked Box Mechanism approach and how to manage the Value Accrual

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A one-day course presented over two-half days in a virtual class from 9:30am to 1:00pm UK time

Part One

Structuring the Purchase price– overview of different approaches

  • Enterprise vs Equity Value
  • Completion Accounts
  • Locked Box Approach
  • Earn-outs

Typical Pricing Structure (The Equity Bridge)

  • Reconciling Enterprise to Equity Value
  • Structuring the Offer Cash free- debt free acquisition
  • Problems with Cash free/Debt-free acquisition approach
  • Four ways to protect the buyer against value erosion
    • Net Debt
    • Normalised Working Capital Adjustment
    • Restrictions on Capex
    • Equity / Net Asset Value
  • What does “Debt” include?
    • Obvious “debt-like” items (i.e. Interest-bearing debt)
    • Contentious “debt” items
      • Pensions (unfunded)
      • Deferred Capex
      • Deferred/reduced rent
      • Stretched lockbox working capital
    • Below the radar “debt-like” items
    • Derivatives (out-of-the-money)
    • Call-protection / early termination penalties on Debt
    • Environmental liabilities
    • Dilapidation provisions
    • Deferred income
    • JV Funding obligations
  • What does “Cash” include
  • Which cash figure matters – Bank vs Ledger
  • Review of the various items in “cash”
    • Cheques – how are they treated?
    • Credit Card payments in transit
    • “Trapped” or “Restricted” cash
      • Foreign Accounts (Structural)
      • Deposits, cash in Trust
    • Operational cash requirement
    • Petty cash
    • Other contentious items
    • Non-operating real estate
    • Rent deposits
  • CASE STUDY: Calculating the Equity Bridge by reviewing key aspects of “Debt” “Cash” and “surplus assets”. Discussion on how to treat deferred revenues

Completion Accounts

  • First-principles – the 6 key issues
  • Composition of the Completion Accounts
    • The three bases of preparation of the Completion Accounts
    • Establishing the hierarchy & why it matters
      • Buyer’s perspective
      • Seller’s perspective
      • GAAP/ IFRS override – good or bad?
    • The main areas of dispute (& how to resolve them)
    • CASE STUDY: Reviewing the Accounting principles and the “hierarchy of accounts” – which approach is best? Does the abolition of Operating Leases actually impact the Accounts?

Completion Accounts - Net Working capital adjustment issues

  • The Basics
  • 4 Different working capital adjustment profiles & how they affect the PEG
  • Major Risks for the purchaser
  • The Seller’s concerns regarding normalised Working Capital
  • Setting the normalised Working Capital PEG/Target
    • “Normalising” the cash free debt free working capital adjustment
    • Normal vs Average vs Core – what’s the difference & why does it matter?
  • Potential problem areas
    • Broad vs narrow
    • “Judgement” areas
    • Intra-monthly movements
    • Dealing with zero balances
    • Other areas
  • Double recovery
    • Lessons from Brim Holdings (interaction with Indemnities)
  • Dispute Resolution - Falling between two stools
    • Lessons from Alliant
  • Some typical examples of manipulation
  • Summary of Best Practices
  • CASE STUDY: Chicago Bridge case
  • Review specific issues that affect Net working capital adjustment across various Sectors
    • Retail
    • Industrial Markets
    • Technology
    • Financial
    • Advanced Financial Services
    • Construction
    • Transport
    • Public Sector
  • CASE STUDY: Determining the lockbox working capital ‘target/peg’ – normalised, run rate, average something else

Part Two

Deals based on the Net Asset Value of a Company

  • Which sectors use the Net Asset Value of a Company (NAV) approach
  • Problems with the definition of NAV e. Net Asset Value of a Company (q.v. Denware case)
  • Potential problem areas with Inventory
    • What is 'cost'
    • What is included in WIP?
    • What is 'net realisable value' and 'net realisable value accounting'?
    • Slow-moving & obsolete inventory
    • 'extraneous' inventory
  • Potential problem areas with Receivables
  • Long-term contracts
  • Valuation and impairment of Long-term assets
  • Provisions generally
  • Advanced Financial services instruments

Locked box Mechanism

  • Key areas of dispute
  • SPA protection
    • Leakage vs Permitted Leakage
    • Anti-leakage provisions
    • Impact of MAC on passage of risk
  • Paying the buyer
    • Equity Interest – what’s the market rate?
    • Market (Value accrual) approach
      • Accrued profits
      • Accrued cash
    • Problematic areas with Value Accrual
    • Interaction with the NWC definition
    • Dealing with non-cash adjustments
    • Dealing with cash-based adjustments
    • Dealing with matters affecting EBITDA or adjusted EBITDA
    • Potential problems in using the Locked Box Mechanism (& how to mitigate them)
      • Carve-outs
      • Accounting Issues - Out-of-date, unreliable, incomplete
      • Split Exchange & delayed Completion
    • Decision Tree - is the Locked Box Mechanism appropriate & or desirable

EBITDA Adjustments

  • The main issue – it’s not an IFRS/ GAAP term
  • Why do we use adjusted EBITDA for valuations?
  • Gains or Losses in the statement of 'Comprehensive Income' but NOT in the P&L account
    • Items that may be reclassified to the P&L account
    • Items that may NOT be reclassified to the P&L account
  • Treatment of Extraordinary and Exceptional items
    • Note: EU-adopted IFRS has no concept of 'extraordinary items'& no definition of 'exceptional items'
  • Fair Value of gains/ losses
  • Revaluations & impairments of property, plant & goodwill
  • What about Synergies in adjusted EBITDA?
  • Buyer EBITDA adjustments
  • Operating leases
  • Employee stock options
  • Pensions
  • Rental expenses
  • Related party expenses
  • Reversal of pre-completion provisions
  • Adjustments for additional/replacement staff
  • Treatment of Interest (if EBIT used) and tax if (PBT used)
  • Other items
  • Impact of Brexit on IFRS


  • Anatomy of an Earn-out
  • The two key aspects - duration & key performance met
  • Performance metrics and problem areas
    • Typical performance metrics (EBITDA/EBIT)
    • What about start-ups (especially Technology ones?)
    • Buyer synergies
  • Dealing with post-completion locked box acquisitions
  • Sale of the part or all of Target (post-completion)
  • Key risks for the Buyer
    • Who determines how the consideration is satisfied
    • Tactics for keeping the vendor interested
    • The premature departure of the vendor(s)
    • Issues for Listed buyers
  • Key risks for the Seller
    • Disputes RE the benchmark
    • Buyer is acquired
    • Security for any deferred consideration (Buyer is insolvent)
  • CASE STUDY: Earnouts – identifying key risk areas and how to mitigate them. Dealing with consideration loan notes and shares (what are the pitfalls)

Please be advised that there is some content overlap between this course & our 'Advanced Negotiation Issues in M&A' & 'Sale & Purchase Agreements' courses. If you are looking to book onto one or more of these courses we would advise contacting us to discuss which combination of courses would be recommended.

Our Advanced Issues in Acquisition Agreements course trainer is a consultant, public speaker and author with expertise in private equity, debt advisory, restructuring and infrastructure. He is a Senior Advisor to KPMG Finland, a Senior Advisor to Reorg EMEA Covenants, the leading provider of information to the European High Yield community, and a Senior Consultant to Grant Thornton UK.

We provide training programmes to a wide range of blue-chip clients in Europe, Africa, the Middle and Far East, North America and Australasia. In-house clients include banks (BNP Paribas, Société Générale, ING, Barclays Capital, Bank of China, RBS, SEB); lawyers (Baker & McKenzie, Skadden Arps, Sullivan & Cromwell, Cadwalader, Latham & Watkins, Weil, White & Case); advisory firms (Lazard, PWC, M&A International, KPMG, EY, Deloitte); PE firms (Cinven, Advent, Barings Asia, Waterland); corporates (Siemens, Airbus, Turkcell, Candy Crush, Gunvor, Statkraft) and governmental bodies (the UKLA, the EBRD, the ECGD, Omani Oil Corp.)

He qualified in South Africa both as a Chartered Accountant, with Deloitte and as a lawyer with Hofmeyr where he was involved in structuring several high-profile project financings including BMW 3 Series, Ford Siera, GM, Sappi and Mondi.

When he moved to London and joined Lazard Brothers as a corporate finance executive he was involved in a wide range of public and private cash-free debt-free transactions. Subsequently, he joined Hoare Govett as an assistant director, where he acted as an advisor to smaller listed companies and was involved in several syndicated Euro-Equity Initial Public Offerings.

In 1991, he joined ABN Amro’s cross-border M&A team before being transferred to MeesPierson Corporate Finance as a Director in Cross-Border M&A where he was also involved in a number of deals in Central Europe. During this time, he was a member of the EU-PHARE programme and advised the Estonian government on its privatisation programme.

He is the Programme Director at the City Business School, London, for Infrastructure Finance for the M. Sc. programme in Business Administration and Finance.

He is a member of the Institute of Chartered Accountants in England & Wales and the South African Institute of Chartered Accountants. He completed a BA and an LLB at the University of Natal and a B. Compt. (Hons) at UNISA.

  • Understand the main components of the Equity Bridge and Cash Free Debt Free (“CFDF”).
  • Review the more complex aspects of Cash in CFDF and how to handle them.
  • Review the complex aspects of Debt in CFDF using Completion Accounts.
  • Develop an in-depth understanding of how lockbox Working Capital (WC) affects, the various items that impact WC and how to set the correct WC-PEG.
  • Review the specific problem areas of normalised working capital (WC) in various sectors (Tech, Transport, Financial).
  • Identify the key risks arising out of the “Accounts” used in both Completion Accounts and Locked Box mechanisms and how to negotiate from the point of Seller and Buyer.
  • Identify how the Locked Box Mechanism works and when to use it.
  • Learn how to negotiate the Value Accrual where the parties seek to use the Locked Box Mechanism but with typical PPA adjustments.
  • How to identify the typical and less typical adjustments in EBITDA or adjusted EBITDA, and why and where that matters.
  • Recognise and mitigate the key aspects which can affect the Earn-outs.
  • Understand the differences between Enterprise and Equity Value and the various valuation methods used to derive them.

Our Advanced Issues in Acquisition Agreements training is aimed at participants who already have some experience with the various lockbox working capital purchase price adjustment mechanisms used in private M&A deals and the M&A process.

The training course starts with the basics but moves quickly to focus on the more complex aspects of Cash Free Debt Free (“CFDF”), the Working Capital Adjustment, the risks in using a Locked Box approach and how to manage the Value Accrual where sellers seek to capture accrued value in a Locked Box (e.g. profits or cash).

Many of these concepts appear simple at first glance, but the devil is in the detail and inexperienced practitioners and principals can gain or lose significant value in the deal. Cash-free debt-free locked box (CFDF) seems a simple enough concept, but ‘Cash’ is not a homogenous item and includes numerous line items, each of which can affect value. Debt offers even greater challenges whilst setting the correct Target /Peg, and NWC adjustment M&A is arguably the most contentious and difficult area. Adjusted EBITDA is another advanced financial aspect, being a driver for many valuations/the purchase price, earn-outs and the NWC adjustment M&A. This is another key area but is highly fluid since it is a defined rather than a recognised accounting term under IFRS (or GAAP).

Many of the issues also overlap so adjustments to EBITDA can affect the purchase price cash-free debt-free working capital calculation ab into (where EBITDA multiples are used), the earn-out is based on EBITDA adjustments, the normalised working capital adjustment / PEG (e.g. where expenses are either over or understated, e.g. rent to the owner) and also in the locked box approach where a value accrual is used based on “profit”.

The Advanced Issues in Acquisition Agreements training programme is aimed at participants with some experience of sale and purchase agreements who are looking to acquire in-depth knowledge of these key advanced financial services issues. Our course will refer to relevant cases drawn from both England and US jurisdictions. Participants will also be given cases to reinforce learning objectives.

  • Definitely a course that i will push for our analysts to join. Great introduction to some of the tricky financial situations that we come across in a deal.
  • Amazing instructor giving numerous practical cases, motivating to a discussion.
  • Experienced trainer, Covered both buyer side and seller side, Focused on key topics.
  • There was a good level of detail in the training.
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Part 1

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£ 895.00

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Part 2

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