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Advanced Financial Issues in Acquisition Agreements - ASPAC

Acquire in depth knowledge on Cash Free Debt Free, the Working Capital Adjustment, the Locked Box approach and manage the Value Accrual

Advanced Financial Issues in Acquisition Agreements - ASPAC Course

A one day course

  • 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 Working Capital (WC) affects, the various items that impact WC and how to set the correct WC-PEG
  • Review the specific problem areas of 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 point of Seller and Buyer
  • Identify how Locked Box works and when to use it
  • Learn how to negotiate the Value Accrual where the parties seek to use Locked Box but with typical PPA adjustments
  • How to identify the typical and less typical adjustments in EBITDA and why and where that matters
  • Recognize 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.

Structuring the Purchase price– overview of different approaches

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

Typical Pricing Structure (The Equity Bridge)

  • Reconciling Enterprise to Equity Value
  • Structuring the Offer Cash free- debt free
  • Problems with Cash free/Debt-free approach
  • Four ways to protect the buyer against value erosion
    • Net Debt
    • Working Capital
    • 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 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” and “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 - Working capital issues

  • The Basics
  • 4 Different working capital profiles & how they affect the PEG
  • Major Risks for the purchaser
  • The Seller’s concerns re Working Capital
  • Setting the Working Capital PEG/Target
    • “Normalising” the working capital
    • Normal vs Average vs Core – what’s the difference & why it matters?
  • 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 working capital across various Sectors
    • Retail
    • Industrial Markets
    • Technology
    • Financial
    • Services
    • Construction
    • Transport
    • Public Sector
  • CASE STUDY: Determining the working capital ‘target/peg’ – normalised, run rate, average something else

Deals based on Net Asset Value

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

Locked box

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

EBITDA Adjustments

  • The main issue – it’s not an IFRS/ GAAP term
  • Why do we use EBITDA for valuations
  • Gains / 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
  • Buyer 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 & problem areas
    • Typical performance metrics (EBITDA/EBIT)
    • What about start-ups (especially Technology?)
    • Buyer synergies
  • Dealing with post-completion 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)

The 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.

Training programmes are provided 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 a number of high-profile project financings including BMW 3 Series, Ford Sierra, 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 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 prior to 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 their 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.

This programme is aimed at participants who already have some experience of the various purchase price adjustment mechanisms used in private M&A deals;

It 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.  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 is arguably the most contentious and difficult area. EBITDA is another key financial aspect, being a driver for many valuations/the purchase price, earn-outs and the NWC adjustment. This is another key area but is highly fluid since it is a defined rather than a recognised accounting term under IFRS (or GAAP term). Many of the issues also overlap so adjustments to EBITDA can affect the purchase price calculation ab into (where EBITDA multiples are used), the earn-out is based on EBITDA, the 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 where a value accrual is used based on “profit”

The programme is aimed at participants with some experience of Sale and Purchase Agreements who are looking to acquire in-depth knowledge of these key financial issues.

The programme will refer to relevant cases drawn from both England and US jurisdictions. Participants will also be given cases to reinforce learning objectives.

  • 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.

Have this course presented In-House

  • On a date, time and in a location of your choice
  • Topics expanded or deleted to your bespoke requirements

Have this course pre-recorded

  • Full course recording edited exclusively for your company
  • Files converted to enable housing on your LMS

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