Global asset deals are transactions in which a business consisting of assets located in multiple jurisdictions is sold without the assets being first separated from the rest of the group.
These transactions often become necessary when the seller of a global enterprise is unable to organize the target business division independently due to operational, tax, or ‘political’ – including employee-related – reasons.
The decision to separate a part of an undertaking regularly leads to a period of uncertainty and curbed corporate activity. To enable the target to renew its focus as quickly as possible, a global asset deal is often the easiest way for purchaser and seller to create a clear and stable deal structure in a reasonably short time.
However, global asset deals involve considerable effort, in particular on the purchaser’s side. They need much closer cooperation between purchaser and seller, and by both parties with the target’s management, than a regular, share deal type M&A transaction.
This briefing sets out core considerations the parties to a global asset deal need to take into account.
Deal structure and documents need to be both global and local: in most global asset deals, the parties set out the key terms and conditions of the transaction in a global purchase agreement, which is consummated when the local assets and employees in the various jurisdictions transfer.
As a result, the parties need to identify the jurisdictions relevant to the transaction and take into account the key local structuring, tax, finance and legal requirements at an early stage of the transaction and in parallel with the ongoing negotiations on the business deal.
Local requirements dictate the overall timing: when preparing the transaction timetable, the parties have to be aware it will take a significant amount of time to implement the carve-out structure and transfer the local assets in accordance with local requirements. As the parties usually intend to transfer all assets in the various jurisdictions at the same time, they have to consider potential delays due to local laws.
Financing arrangements need to ‘go local’: finance for a global asset deal is generally provided by one set of financing arrangements that applies globally. These need to tie in smoothly with financing requirements – debt and equity – on a local level.
Local debt financing: local entities will require access to global financing arrangements. They will often need to be able to draw down financing from local banks or branches of global banks, both for their operative business and to pay the local portion of the global purchase price.
Local equity: in many jurisdictions, a certain level of equity is either legally required or operationally necessary. At the same time, a strict formal procedure – for example notarisation or registration with a public authority, valuation proceedings or stamping requirements – has to be followed to enable the contribution of equity to a local entity.
Local purchase price payments: tax and other regulatory requirements often make it necessary to make local purchase price payments on a per country basis. To be certain of the financing on a local level, it is key to determine the amount of such payments early on in the process. Practically, this is often a difficult task because the local assets to be purchased first need to be identified and evaluated.
Foreign exchange controls: tight foreign exchange controls can result in complex and time-consuming funding processes, which need to be factored into the deal timetable.
Transfer of local assets and contracts
Formal requirements: depending on the assets to be transferred, additional formal requirements – for example the use of local language or certification by a notary – may apply to the local asset transfer agreements. In particular, the transfer of real estate is usually very formal.
Identification and detailed description of assets: in most jurisdictions, the asset transfer agreement needs to list all transferred assets and liabilities in detail. This requires diligent preparation and close co-operation with the operational teams.
Transferring contracts usually requires third party consents: assigning a contract usually requires the consent of the other contracting parties, or even a novation agreement. There is a risk that third parties will negotiate the terms of the assignment, or even demand compensation or a renegotiation of commercial terms for their consent.
Transfer of IP rights: the transfer of registered IP rights usually needs to be filed with a public registry. Also, certain types of IP rights cannot be transferred and can only be sub-licensed to the purchaser.
Transfer of employees
Information or consultation: the parties need to identify early the jurisdictions in which they need to consult or inform the target employees or their representatives. Consultation usually takes a substantial amount of time and avoiding it may trigger significant fines or even delay the whole transaction.
Automatic transfer rules: the parties have to consider in which jurisdictions the employees automatically transfer together with the target business and in which countries a separate transfer, for example by way of a tripartite agreement with the employee, is required.
Pensions and benefit arrangements: the target employees’ pension and benefit arrangements should be reviewed at an early stage. Depending on the jurisdiction, transferring the employees means their pension accruals and other benefits must also be transferred or disbursed.
Public authorizations and permits
Authorization to transfer the assets: government approval is often needed before specific types of assets can be transferred, particularly in regulated industries. Also, if a foreign entity acquires assets related to certain business and industrial sectors, the process is sometimes regulated and needs public authorization.
Permits to operate the business: public permits, such as a trade license, are often needed to operate the target business. The purchaser has to contact the competent authorities early in the transaction to ensure the necessary licenses will be in place when the transfer is completed, so that and the acquired business can start to operate independently.
Local representation: the purchaser has to consider whether a local branch or entity is needed to acquire and operate the business on a per country basis. Depending on the type of entity, the time needed to incorporate it may vary significantly.
Local directors and physical office: to set up a local company in some countries, at least one director needs to be a local resident. Also, usually for tax purposes, a company often needs to have a physical office in the relevant jurisdiction.
Local bank accounts: a local bank account is often essential to operate on a local level and to put a local entity in place. In most jurisdictions, opening an account can be very time-consuming because of client verification and anti-money laundering procedures.