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Corporate and M&A

Some of the suggested courses are set out below. If there is any particular area of interest that is not covered please contact us.

1. Understanding financial statements in the context of corporate transactions

Objectives

  • To provide a practical understanding of financial jargon in company accounts and to increase the confidence of delegates when reviewing financial statements as well as using these terms in legal documents
  • To give delegates a thorough grounding in the bases of valuation used throughout financial statements and of how Accounting Standards sometimes allow more than one valuation
  • To allow delegates to interpret simple financial statements so that they can assess how an entity is performing and uncover extra information about the business which is not explicitly stated in the accounts

Content

Using corporate transactions as a basis for the course we will cover:

  • Why do corporate lawyers need to understand financial statements?
    • Typical corporate transactions involving the use of financial statements
  • How financial statements reflect and report on an entity’s business mode
  • Key components of a set of IFRS financial statements including:
    • What is included and why
    • What is profit and why it may be different from reported cash (the “accruals” principle)
    • Overview of income statement, statement of financial position and cash flow statement and what is included and what is not, how they interact and what they are telling us about an entity
    • An approach to reading a set of financial statements
    • What is important to the corporate lawyer and how to find the information
  • Types of financial information you are likely to encounter in your work as corporate lawyers
    • Annual financial statements
    • Management accounts
    • Group or individual accounts
    • Interim accounts
    • Special purpose accounts
  • Brief introduction to different accounting regimes and generally accepted accounting practices (GAAP)
    • Different GAAPs
      • IFRS, US GAAP and other national GAAPs
      • How they differ and why this matters
      • Why this is important for lawyers
    • What are accounting principles, policies and estimates
    • What to watch out for in cross-border matters
  • The role of the auditor
    • Audit reports and opinion
    • Degree of accuracy and completeness – True and Fair view
    • Involvement of auditors in the work of the corporate lawyer
  • Why all this matters to the corporate lawyer – a summary

 

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2. Accounts warranties

Objectives

By the end of this session, participants should be able to:

  • Understand the importance of the accounts warranties and why these are obtained
  • Identify which documents to include in the accounts warranties
  • Appreciate the importance of identifying the appropriate accounting “regime” and differences in terminology
  • Negotiate the key accounts warranties taking into account the accounting issues
  • Understand potential buyer and seller points for drafting accounts warranties

Content

  • Introduction
    • Purpose – three key objectives
    • Buyer Friendly and Seller Friendly approach
  • Using example case study clauses or your firm’s precedent document we consider:
    • Key definitions
      • Definition of “Accounts” and which entities are being included
      • Which documents to include and how to identify them in the Financial Statements
      • Which accounting regime (GAAP) and how to identify this information from the Financial Statements
      • The use of correct terminology
      • Definition of Management Accounts
    • Key warranties
      • Basis of preparation
        • Why this is a critical warranty?
        • How preparation is referred to in the audit report
        • Drafting issues
      • Degree of accuracy
        • Legal requirements
        • True and Fair, Fair Presentation or something else?
        • What do they mean?
        • Link to basis of preparation
      • Consistency
        • What is the issue?
        • Accounting policies and accounting estimates
          • What are they and why they matter
          • How can they change and how will you know?
          • Drafting issues
      • Unusual, non-recurring, exceptional and extraordinary
        • What are the issues and how are the terms defined in accounting
        • How should they be referred to in the warranties?
      • Management accounts warranties
        • Why are there so many issues when negotiating these warranties
        • Buyer and seller positions
        • What are you trying to achieve, why and how should you approach the warranties
      • General warranties
        • General liabilities including provisions and contingent liabilities
        • What other warranties to consider
      • Events after the reporting date

Course Types

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Face to Face courseFace to Face
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3. Completion accounts

Objectives

By the end of this session, participants will understand

  • The purpose of price adjustments and completion accounts
  • Where there are accounting issues and the need for careful drafting
  • Difference between enterprise value, equity price and debt free cash free
  • The need for careful definition of terms particularly including:
    • Debt and cash
    • Net debt
    • Working capital
    • Net Assets
  • How careful drafting can help to prevent “price manipulation” and
  • The need for clarity when drafting instructions for producing the Completion Accounts or Statement and the interaction with the definitions
  • Review of instructions “hierarchy” and focus on what needs to be included in the specific policies and what happens if there is no specific policy
  • Avoid post completion disputes

Content

Using your firm’s precedent documentation we will cover the key issues relating to the adjustment mechanism in a debt free cash free deal and agreeing the instructions for agreeing the completion statement. We will cover:

  • Enterprise v Equity value
  • Debt Free Cash Free price and equity consideration
  • True up
  • Defining of Debt and Cash
    • Looking at the definitions and the issues
    • What are cash equivalents?
    • Dealing with restricted cash
    • What should we include in the definition of debt
    • How to deal with balances between the seller (or seller group) and target
  • Working capital targets including definition and use to prevent price manipulation
    • What is working capital and why is it so important
    • How to define it
    • Example of how it may be used to prevent “manipulation” of the consideration
  • Other possible targets for adjustment including Net Assets and when this may be used
  • Format of completion accounts
    • Policies for preparing the completion accounts
    • Order of precedence – have we covered everything?
    • Accounting policies
    • What must we cover and how to avoid post deal disputes
  • Issues and checklist

Course Types

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Face to Face courseFace to Face
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4. Locked box approach

Objectives

In this short session we will review a Debt Free Cash Free deal under both the Locked Box and a Completion Accounts approach from both the buyer’s and seller’s perspective.

As a result of this session participants will be more confident in: 

  • Knowing the commercial advantages and disadvantages with each approach
  • Know where the accounting and commercial risks lie
  • Drafting the accounting aspects of the relevant clauses in the SPA

This will enable delegates to:

  • Negotiate deals more effectively and efficiently
  • Spend less time in drafting and researching
  • Be better prepared for client meetings

Content

In the session we will cover:

  • A reminder of the Completion Accounts approach
  • What is the “Locked Box”?
  • What needs to be negotiated
  • Where do the risk’s lie and how may these be managed? (A brief introduction to how to manage risk)
  • Certainty of price versus precision
  • Preventing the seller from extracting value pre completion
  • The issue of accounting policies in Completion Accounts
  • The issue of leakages in the locked box
  • Setting the price and forecasts to date of completion
  • Balancing the risk of unexpected performance versus the savings in management time and other costs (an opportunity cost approach)
  • Why may a purchaser be happy with a locked box rather than completion accounts
  • A check list of things to consider when advising on each

Course Types

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Face to Face courseFace to Face
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5. Earn-out arrangements

Objectives

Earn-out arrangements may provide a useful tool for helping to make a deal happen especially when there is a difference of opinion over the value of the target.

In this session we will look at some of the key accounting issues to be addressed when negotiating an earn-out and how an earn-out may be reported in a set of UK GAAP or IFRS financial statements.

Content

In the session we will cover:

  • The commercial reasons for choosing an earn-out
  • The risks (including those associated with continued seller involvement)
    • Which earnings? How are they defined including EBITDA
    • Earn-outs based on free cash flows and other targets
    • Instructions for deriving the earn-out amounts including basis of preparation and other accounting issues
    • Possible areas of conflict
    • Buyer concerns
    • Seller concerns
  • How the arrangement may be reported in the financial statements
  • Checklist of issues to consider

Course Types

In house courseIn house
Face to Face courseFace to Face
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6. The essential M&A tax toolkit for UK corporate lawyers

Objectives

With the Government changing dramatically how tax works in the UK through the “Making Tax Digital” programme combined with adherence to the OECD BEPS Programme, Corporate Lawyers need to keep abreast of developments in the world of tax.

Helping you to do this, we have put together a series of four short modules providing an essential tax reference point for corporate lawyers working on the sale and purchase of private companies in the UK. They are not designed to make you a tax expert but understand how and where tax effects the deal.

The course will give corporate lawyers a straight-forward and jargon-free overview of the key tax aspects of a typical M&A transaction as it effects the SME sector and how these have changed in recent years. We will examine a number of familiar (and some unfamiliar) tax strategies and explain their relevance and context.

This session will cover many of the questions that lawyers are sometimes afraid to ask, for example which taxes are relevant, who pays what and when, how are they calculated, how do they impact the transaction (should this client be selling the shares or should this client buy the assets …) and why the tax deed and warranties are so important to the deal?

It will increase your confidence in communicating, not only with clients, but also with other members of the M&A team. It will help in understanding the likely tax strategies involved when taking instructions or drafting transactional documentation.

You will benefit by

  • Understanding how tax can drive the shape of the deal and how the deal may evolve and why an SPA is not always the first document to reach for!
  • Understanding the pitfalls and planning opportunities
  • Negotiating better deals by knowing when to bring in the experts
  • Being better able to manage client meetings

Conten

An introduction and the taxation of gains on selling shares

  • How tax is developing – with particular reference to tax avoidance and the GAAR (General Anti Abuse Rules) and the attitude to schemes!
  • Changes in how we account for Financial Instruments, Goodwill and Intangibles and how this could effect the deal
  • Purchase of assets and goodwill v Share sales
  • Capital Gains Tax – investors’ and entrepreneurs’ relief
  • Deferred consideration and earn outs
  • Substantial shareholdings exemption

Pre-sale tax planning and reconstructions/reorganisations

  • Allocation of consideration – tips and problems
  • Pre sale reorganisations
  • Hive downs
  • Statutory and non-statutory demergers
  • Tax clearances
  • Anti avoidance and the HMRC approach

Refresher and accounting for current and deferred tax

  • Refresher on assets v shares
  • Treasury Management and tax – the concept of cash tax volatility and management
  • Where is current and deferred tax in the accounts?
  • Accounting for corporation tax
  • Principals of deferred tax with worked examples
  • Deferred tax relief and assets
  • UK GAAP versus IFRS treatment (and what FRS 102 will bring)

Tax deeds and warranties demystified

  • Purchase assets or shares
  • Specific tax problems coming from purchases and sales
  • Role of the tax deed and the warranties
  • Pre-completion liabilities
    • Actual liabilities
    • Deemed liabilities
    • Exclusions
    • Degrouping charges
  • Post completions liabilities
  • Other clauses in the tax deed including when you may need to watch deferred tax

Course Types

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Face to Face courseFace to Face
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7. Distributable profits and reserves

Objectives

To enable lawyers to understand

  • What a distribution is and which accounts are used to determine distributions
  • The difference between realised and unrealised profits and how they can be identified
  • What the more common reserves are in a set of financial statements and the ability to distribute these reserves
  • The common issues surrounding distributable profits using an intra group scenario

Content

  • Principals
    • What is a distribution
    • Who is responsible for distributions
    • Consequences of unlawful distributions
  • Accounts
    • Relevant accounts
    • The issue of interim dividends
  • Distributions
    • Basic rules of distributions
    • Difference between realised and unrealised profits
    • How can distributable profits be identified in a set of accounts
  • Practical application - a subsidiary wants to transfer a £10m property to its parent company
    • Considerations
      • Is there a distribution and what is its value?
        • Including the rules for transfers at undervalue
      • Does the entity have reserves available for the distribution?
        • Including an overview of the more common reserves
      • When will the distribution be recognised in the parent company?
        • Circular transactions
        • Dividends re-invested in a subsidiary

Course Types

In house courseIn house
E Learning courseE-Learning
Face to Face courseFace to Face
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8. Share issues and share buybacks

Objectives

To enable lawyers to understand:

  • The accounting jargon arising in relation to share transactions
  • How accountants determine whether shares are classed as debt or equity
  • The differing impact of shares issued for cash or as part of a share exchange on the statement of financial position
  • The impact of a redemption of shares which were classed as either debt or equity on the statement of financial position

Content

  • What factors will determine whether a share is classed as debt or equity
  • The impact of share issues on the statement of financial position
    • Ordinary shares issued for cash
      • Share premium account
    • Ordinary shares issued for non-cash consideration
    • Redeemable shares
    • Compound financial instruments
  • The impact of capital reductions and share buy backs on the statement of financial position
    • Practical considerations for buying back shares
    • Redeeming shares at par
      • Capital redemption reserve
    • Redeeming shares out of the proceeds of a new issue
    • Redeeming shares at a premium
    • Redeeming shares classed as liabilities
  • Permissible capital payment
  • Creating distributable profits by cancelling share premium

Course Types

In house courseIn house
E Learning courseE-Learning
Face to Face courseFace to Face
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9. Understanding business valuations

Objectives

By the end of the session, delegates will:

  • Understand how businesses use financial techniques to help make “investment decisions”
  • Appreciate when a business valuation may be required
  • Have an insight into how a business might be valued

Content

  • Introduction and course objectives
  • How businesses make “investment decisions”
    • Overview of the key investment appraisal techniques
      • Accounting return
      • Discounted cash flows
      • Cost of capital and Internal Rate of Return (IRR)
      • Why IRR is a key measure for investment decisions including private equity and project finance
  • Valuations in practice – when are business valuations required and what is the valuation process in an acquisition? What is the issue?
  • Introduction to the main business valuation techniques including:
    • Enterprise or Equity valuations and link to Debt Free Cash Free Price
    • Earnings based valuations
    • Cash flow valuations
    • Choosing the valuation technique

Course Types

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10. Groups, consolidation and accounting for investees

Objectives

Benchmarks used in legal transactions and the associated definitions such as EBITDA are often derived from a group’s consolidated accounts. Therefore lawyers involved with corporate transactions and negotiating such items (for example in completion accounts or earn-outs) must understand when group or consolidated accounts are required, what constitutes a group for accounting purposes and how the group or consolidated accounts are produced.

Failure to understand this could lead to the Group being defined in a different way from the accounting requirement which may lead to unintended consequences such as an entity being left out of the consolidation for the transaction.

This course is designed to provide lawyers with a clear understanding of the issues when deciding how to define groups for purpose of the agreement and how various investees will be included in the group accounts.

Content

  • Which companies prepare group accounts?
  • Who is included in the group accounts?
    • The control model
    • Definitions of subsidiaries, joint ventures, associates and other investments
  • How do we account for subsidiaries?
    • Accounting treatment in the consolidation
    • Inter-group transactions
    • Goodwill
    • Mid year acquisitions
  • How do we account for joint ventures and associates?
    • The equity method
  • How do we account for other investments?
  • Issue of group accounts and pro forma (illustrative) financial information
  • Why this matters to lawyers?

Please note: This course assumes that participants have attended a basic course on understanding financial statements.

Course Types

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Face to Face courseFace to Face
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11. Techniques used to assess the financial suitability of a proposed transaction

Objectives

Parties to legal transactions, such as in acquisitions or structuring finance, will often use a variety of financial techniques to assess the financial suitability and viability of a proposed transaction.

In many cases the analysis will form the bases of “benchmarks” to be included in the legal agreements. Such benchmarks may include

  • Maintenance and incurrence covenant ratios in financing agreements
  • Target EBITDA (earnings before interest, tax, depreciation and amortization) used to assess the level of
    • Pay out in an earn-out; or
    • Payment under an employee benefit plan
  • Internal rates of returns (IRR) to assess the minimum levels of return acceptable to a sponsor or lender

This course is designed to provide lawyers with an insight into this analysis and the benchmarks used and to be in a better position to have discussions with clients when negotiating and drafting the financial terms in legal agreements.

Content

Profitability and solvency assessment from the financial statements

  • Introduction: setting the scene and why we use ratios to evaluate companies and the importance of trend analysis
  • Basic calculation and interpretation of common financial ratios used by acquirers, bankers, investors and financial analysts to help summarise and present financial information in a more understandable form
  • Analysis will be grouped into the following categories:
  • Performance: earnings per share, P/E ratios, dividend cover, yields, profitability (including EBITDA) and margins, is the company generating a “good return”?
  • Short-term liquidity (e.g. current ratio, quick ratio)
  • Long-term solvency (e.g. financial leverage ratios – the extent to which a company is using long-term debt including debt service cover)
  • Efficiency (e.g. how efficiently is a company using their assets to generate sales? How quickly are they collecting cash from their debtors/paying their creditors? What is its working capital policy?)
  • What else should you look for?

Cash flows – forward looking analysis

  • Introduction
    • How cash flows are used to value and assess the returns of “projects” and to value businesses
  • Core techniques and analysis
    • Payback, time value of money (TVM) and discounted cash flows
    • Net present values (NPV) and Internal rates of returns (IRR)
    • Financial structure, cost of capital and financial leverage
    • Example: How this analysis may be used in assessing private equity and/or a capital budgeting decision

Course Types

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12. Applying New UK GAAP to corporate transactions

Objectives

The main aims of the session are to provide a practical understanding of how the new UK GAAP will impact corporate transactions.

Content

  • Overview of the new UK GAAP framework (focus will be on FRS 102)
    • Choices available to entities
    • FRS 102 Financial Reporting Standard applicable in the UK and Republic of Ireland
    • FRS 101 Reduced disclosure framework
    • Choice of FRS 102 or FRS 101?
    • Reminder of requirement for consistent application of “same accounting framework” CA 06 s407(1) and why this matters
    • FRS 102
      • Key dates, timelines and date of transition
      • Transition balance sheet and first FRS 102 accounts
      • Important issues to be aware about:
        • Retrospective application with limited “get outs”
        • Lack of accounting guidance
        • Different accounting treatments and with retrospective effect
        • Effect on net assets
  • Overview of issues that will arise in corporate transactions
    • Terminology and definitions
    • Accounts warranties
      • Disclosure requirement in the first set of FRS 102 accounts
        • What has to be disclosed about the changes?
      • Transition balance sheet warranties
      • Distributable reserves and net assets affect
      • Basis of preparation and true and fair warranties
      • Consistency warranties
      • Management accounts warranties
      • How will clauses and definitions change?
    • Completion accounts and earn-outs
      • Accounting policies instructions
      • Which framework to use? Frozen or rolling GAAP?
      • What factors to consider when drafting completion accounts clauses
    • Distributable profits
      • Transition period
      • Relevant accounts and need for interim accounts to support a distribution
      • Effect of retrospective application
    • Factors to consider during transition period to application of FRS 102
      • Transition is in process
      • Transition complete

Course Types

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13. Negotiating EBITDA

Objectives

Corporate transactions often use the earnings measure, EBITDA, as a key benchmark- for example in assessing the amount payable under an earn-out.

The issue is that EBITDA (earnings before interest, tax, depreciation and amortisation) is a non-GAAP measure and therefore is not defined by the accounting rules. As such it has to be negotiated and defined separately for the purposes of the transaction.

The aim of this course is review the key points that need to be considered when negotiating EBITDA. By the end of the course, participants will understand the issues and be better placed to negotiate how this earnings measure is defined and calculated in the context of corporate transactions.

Content

Using illustrative financial statements and illustrative definitions.

  • GAAP and Non-GAAP measures
  • Context in which EBITDA and Adjusted EBITDA are used
  • Defining EBITDA
    • What is it and what it tells us?
    • Why is it so popular?
  • A review of common adjustments with negotiating points from buyer and seller perspectives
    • Which items are missing and why EBITDA may not be an appropriate measure?
  • Key strengths and the failings of EBITDA
  • Checklist for negotiation
  • Using the illustrative financial statements, and definitions, the definitions will be applied to the underlying financial information to demonstrate the calculation of EBITDA. Explanations will be provided for each of the adjustments together with the consequences on the figures

Course Types

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14. UK GAAP and IFRS accounting update for lawyers

Objectives

When putting together the terms of transactions, lawyers need to know not just about the current accounting rules and how they affect transactions but about any new rules due to implemented.

The purpose of the annual update is provide lawyers with an overview of some the key accounting changes that will be coming.

Content

New UK GAAP

  • Reminder of the new framework
  • Focus on differences in the accounting including
    • Intangibles
    • Investment properties
    • Groups
    • Financial instruments including derivatives and hedge accounting
    • Financial instruments – Inter-company loans at off market rates
    • Round up of other key changes including holiday pay, lease incentives and so
    • Use of different terminology
  • Effect on key benchmarks such as operating profit, EBITDA, Debt and Net Assets
 IFRS

Over the next three years, IFRS is changing significantly. The effect on the financial reports and the commercial issues cannot be underestimated.

  • Review of the three key areas of significant change
    • IFRS 9 – Financial Instruments
    • IFRS 15 – Revenue from contracts with customers
    • IFRS 16 – Leases
  • Effect on key benchmarks such as operating profit, EBITDA, Debt and Net Assets

Course Types

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15. Completion accounts – Practical workshop

Objectives

Negotiating the clauses that set out how and what amounts are to be included in the completion accounts (completion statement) can be fraught with difficultly and include complex accounting issues that need to be resolved and agreed. Also, it is important to remember that the definitions of items to be included and the accounting instructions to be followed are part of “a whole” and need to be considered as such. The danger, otherwise, is that a definition may include a specific item but there are no instructions as to how the item should be recognised and valued in the completion accounts and therefore the accountants may fall back on normal accounting rules which may not be what the parties intended. This may lead to unintended consequences and potentially post deal disputes.

By the end of the course, participants will be better placed to agree the definitions and the specifically the accounting policies to be followed in the preparation of the completion accounts.

Content

  • The issue and the consideration
  • The definitions for the price adjustment mechanisms and the link to accounting
  • The format of the Completion Accounts (Statement) and the use of provisional statements
  • The basis of preparation including general and specific policies and the link to the definitions

Course Types

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16. Distributable profits and reserves – Practical workshop

Objectives

To give senior lawyers an understanding of the more complex areas surrounding distributable profits and reserves and allow them an opportunity to ask questions which cannot always be asked when in the middle of a deal.

Content

Each masterclass will be individually tailored to requirements and questions. Previous popular topics have included:

  • Value of distributions and dividends in specie
  • The issue of intra group dividends
    • Including how this can be extended to third parties
  • Dividend blocks
  • Deemed distributions
    • Including the issues for international groups

 

Course Types

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Face to Face courseFace to Face
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