Advanced Financial Issues in Acquisition Agreements

£725.00 +VAT

This course can also be presented face to face in-house or via live in-house webinar.

Advanced Financial Issues in Acquisition Agreements Course Objectives

Participants Will:

  • 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 indepth 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

Advanced Financial Issues in Acquisition Agreements Course Content:

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

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)

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
    • “Judgment” areas
    • Intra-monthly movements
    • Dealing with zero balances
    • Other areas
  • Double recovery
    • Lessons from OSI Systems case – (interaction with Indemnities)
    • Lessons from Brim Holdings interaction with provisions
  • Dispute Resolution – Falling between two stools
    • Lessons from Alliant
  • Some typical examples of manipulation
  • Summary of Best Practices
    • Review of Chicago Bridge case
  • Review specific issues that affect working capital across various Sectors
    • Retail
    • Industrial Markets
    • Technology
    • Finacial
    • Services
    • Construction
    • Transport
    • Public Sector

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 – its not an IFRS/ GAAP term
  • Why do we use EBITDA for valuations
  • The “top 10” adjustments in selling a business
  • Gains / Losses not in the P&L account
  • Treatment of Extraordinary and Exceptional items
  • Fair Value gains/ losses
  • Revaluations
  • What about Synergies
  • Buyer adjustments
  • What about synergies
  • Operating leases
  • Employee stock options
  • Pensions
  • Rental expenses
  • Reversal of provisions
  • Adjustments for additional/replacement staff
  • Treatment of Interest (if EBIT used) and tax if (PBT used)
  • Other items


  • 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
    • 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)

Background of the Trainer:

The trainer is a consultant, public speaker and author. He provides training programmes globally to a blue-chip client base on private equity, debt finance, loan documentation and restructuring. He is a senior consultant with Debt EXplained, with Grant Thornton UK (Debt Advisory) and is also a Senior Advisor to KPMG Finland. He has spoken at conferences in the UK, Europe, Australasia & South Africa. He provides training to a wide range of clients on a bespoke in-house basis & publicly through Redcliffe Training Associates. Additionally, he is the Programme Director for the infrastructure / project finance module for the MBA programme at the Cass Business School in London.

Advanced Financial Issues in Acquisition Agreements Course Summary:

This Advanced Financial Issues in Acquisition Agreements 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 arguable 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 if 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 Advanced Financial Issues in Acquisition Agreements 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 Advanced Financial Issues in Acquisition Agreements Course will refer to relevant cases drawn from both England and US jurisdictions. Participants will also be given caselets to reinforce learning objectives.

2.4/5 (8 Reviews)

25 January 2019, 18 June 2019, 18 October 2019