This document discusses key considerations for structuring and financing acquisitions. It covers regulatory, tax, and accounting considerations. Commonly used deal structures include stock purchases, asset purchases, and mergers. Financing can come from banks, finance companies, long-term finance, venture capital, and leveraged buyout funds. Forms of financing include debt, preferred stock, common stock, and other instruments. A case study demonstrates using offshore debt financing through a special purpose vehicle to acquire a US basmati rice company.
Corporate Profile detialing out the team, clientele and practice areas of Corporate Professionals Capital Pvt Ltd, a Category 1 registered Merchant Banker
Beamonte Investments is one of the world’s leading investment and advisory firm. Beamonte Investments seek to create long-term value for its investors, the portfolio companies and the companies it advises. Beamonte Investments provides various financial advisory services, including investment banking advisory, financial and strategic advisory and fund placement services. Beamonte alternative businesses includes the management the private equity funds, real estate funds and credit oriented strategies.
Corporate Profile detialing out the team, clientele and practice areas of Corporate Professionals Capital Pvt Ltd, a Category 1 registered Merchant Banker
Beamonte Investments is one of the world’s leading investment and advisory firm. Beamonte Investments seek to create long-term value for its investors, the portfolio companies and the companies it advises. Beamonte Investments provides various financial advisory services, including investment banking advisory, financial and strategic advisory and fund placement services. Beamonte alternative businesses includes the management the private equity funds, real estate funds and credit oriented strategies.
An excellent management roadmap that illustrates the various and often competing stakeholders the CEO must satisfy in running a company small or large.
Big data meets customer profitability analytics april 10 cw slidesCraig Williston
Calculating customer profitability seems simple enough. Subtract expenses from revenue, by client. But the complexity of today's financial institutions and the messy data that has resulted complicates gaining a good picture of individual clients and their value to the organization.
2. Deal Structuring is of paramount importance
REGULATORY • Open offer requirements, ownership norms, capitalization
CONSIDERATIONS norms
• Capital gains impact to sellers, stamp duty and sales tax
TAX CONSIDERATIONS
issues, availability of past tax losses
• Ability to consolidate, goodwill impact, provisioning in the
ACCOUNTING
balance sheet, purchase consideration break-up between
CONSIDERATIONS
assets
• Cost of capital, availability of funds on target vs. acquirer
FINANCING
balance sheet, tax benefit for interest expense, Cross-
CONSIDERATIONS border jurisdictions
DEAL TIMING • Implementation time to financial closure
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4. Transaction Structures | Stock Purchase
Target
Shareholders
Target Stock
Target
Acquirer
Corp.
Cash
Target
Assets
Benefits Some Potential Issues Recent Examples
• Simple and quick to • May lead to tender offer • Vodafone’s acquisition of
execute requirements the equity from Essar in its
• Minimal transaction costs • Potential capital gains telecom business
• Pricing benchmarks are Implication for the seller • Mahindra’s acquisition of
easier to establish • Inability to cherry pick select Shares in Satyam Computers
assets of the business • Emami’s acquisition of
shares in Zandu
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5. Transaction Structures | Asset Purchase
Target Acquirer
Shareholders Shareholders
Target Cash Acquirer
Corp. Corp.
Target Assets
Target
Assets
Benefits Some Potential Issues Recent Examples
• Fairly quick to execute • Potential implications of stamp • Schneiders’ purchase of
• Ability to cherry pick assets duty and sales tax the cabling business of
(or a specific business) • Cash inflow into the company Smartlink
• No tender offer requirements and not to the shareholders • Indo Asian Fusegear -
• Could be slump sale or Legrand
Piecemeal transaction of • Abbott’s purchase of
assets Domestic Formulations
business of Piramal’s
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6. Transaction Structures | Mergers
Target
Acquiring
(merged)
company’s
shareholders company’s
shareholders
Cash and/or other ABC
consideration stock
Assets
Target
Acquiring (merged)
company XYZ company ABC
(dissolved)
Cash and/or other
consideration
Benefits Some Potential Issues Recent Examples
• Ability to consolidate • Time consuming - needs • Centurion Bank of Punjab
operations into a single entity court approvals with HDFC Bank
• Ideal in situations like JVs • Needs approval of lenders • Bank of Rajasthan with
wherein existing shareholders and majority shareholders ICICI Bank
wish to continue
• Variants include reverse
mergers and demergers
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8. Some Key Considerations
Sources of Financing
Forms of Financing
Cost of Financing
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9. Sources of Financing
Sources of Finance
Commercial Finance Long term Venture Leveraged
Buyer Seller
Banks Companies Finance Capital Firms Buyout Funds
Insurance Pension
Companies Funds
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10. Financing Considerations Differ
The buyer / management team provide the most critical portion of
the transaction
Management/ The amount of principal a buyer invests often dictates
Buyer The capital structure of the transaction
The terms of the transaction
The types of lenders that will participate
Seller may finance part of the transaction if the seller receives a
premium over an all cash price
Seller of Target Seller may be willing to take back long term, subordinated debt and
Company
occasionally preferred stock
Earn-out arrangements are also used for compensation
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11. Financing Forms | Characteristics
DEBT EQUITY
CHARACTERISTICS SENIOR SUBORDINATED PREFERRED COMMON
Tax-deductible finance costs X X
Covenants/ Restrictions X X
Convertibility features X (In specific cases) X
Dilution of Ownership X (In specific cases) X X
No required fixed payments X
Base for leverage X X
Not subject to redemption X
Cost of financing Low Higher Higher Highest
EPS dilution of shares X (In specific cases) X X
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12. Financing Forms | Other Financial Instruments
Debt securities with attached or detachable equity warrants
Debt with Warrants
Gives the debt holder participation in the future performance of the company
High-yield, high risk securities
Junk Bonds
General obligation bonds that have credit ratings below investment grade
Debt securities with interest and /or principal payable in cash or securities of
Paid-in-Kind Debt
the issuer at the issuer's option
Paid-in-kind Preferred Stock which pays dividends in cash and /or additional shares of
Securities preferred stock at the issuer's option
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13. Financing Forms | Other Financial Instruments
Adjustable Rate Preferred stock with interest rates that are reset at periodic auctions
Preferred Stock
Debt securities with Investors retain put option
put option
Alphabet / Tracking Investors hold a company's stock but the shares participate only in the
Stock
earnings of a specified subsidiary or group of assets
Sale-lease back Similar to Senior Debt
financing Complicated as to who receives the risk/benefit of the residual value
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14. Acquisition Finance (Debt) | Structuring
FACTORS DRIVING ACQUISITION FINANCE
Company’s Perspective • Lender ‘s Perspective
Minimum equity contribution Adequate security with commensurate
Appropriate leveraging through an optimal funding return
structure balancing cost and risk Protection against default
Limited recourse to parent for repayment - Ring Promoter comfort and contribution
fencing liability associated with acquisition
STRUCTURING REQUIREMENT
Myriad transaction specific structuring options available
Different contemporary financial instruments for funding the acquisition including debt, mezzanine and equity
Indian and offshore laws and regulations relating to acquisition, tax and investment
BROAD STRUCTURING OPTIONS
• Target Vs. Acquirer (Leveraged Vs. Own Balance Sheet)
• Recourse Vs. Non-Recourse
• Off-shore Vs. On-shore SPV
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15. Acquisition Finance (Debt) | Challenges
Objective Issues / Challenges
Optimizing Cost • To minimize the Financing cost
• To minimize Transactions Costs like DD cost, Legal cost etc.
• To minimize Future Costs like Prepayment penalty, Commitment charges, Penal interest etc.
Structuring the • To finalize the best suitable Financing instrument and provide the most appropriate Security
Transaction most
appropriately • To choose the best suitable Jurisdiction and most optimal Borrowing Vehicle
• To negotiate the Financial Covenants / other Restrictive covenants
• To structure the Repayment schedule as per the Cash flow
• To minimize the various kind of Tax (Withholding, Dividend Distribution, Income Tax etc.)
Finding the most • To decide the most suitable Lender from a long-term perspective
suitable Lender
• Whether to go for a Bilateral loan or Syndicated loan
Timely completion • To complete the Transaction in a Short Time especially when there are multiple bidders for
of the Transaction /
Synchronize the the Target
entire process • To coordinate across different geographies, lenders and various advisors
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16. Case Study - Acquisition Finance for L.T. Overseas Ltd. (1/2)
Business Acquisition
USD 20 MN
L T Overseas Ltd. Kusha, INC. Strategic Opportunity
• One of the largest • The largest basmati rice • Kusha has provided the marketing
basmati rice players in marketing and distribution and distribution platform for LT
India with a topline of company in the US, with Overseas’ brands
~USD 120 MN revenue of ~ USD 40 MN • With its milling and product
• Owner of “Dawaat” and • Has portfolio of strong brands, development capabilities, LT
“Heritage” brands “Royal” and “Pari”, with 40% Overseas will be able to launch high
market share in the US value add products in the US market
basmati rice industry • LT Overseas became the largest
basmati player in the US
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17. Case Study - Acquisition Finance for L.T. Overseas Ltd. (2/2)
‘DEBT TO OFFSHORE SPV WITH RECOURSE’
Lending Bank Rupee The Lending Bank, through its offshore operations,
India Operations Loan of Acquirer
Rs. 80 extended US$ 13 million financial assistance to
million facilitate acquisition of the Target
ONSHOR
OFFHORE Extended additional US$ 2 million to the Indian
operations through its Indian Balance Sheet
Corporate Equity Investment Loan extended infused as Equity in the US SPV
Guarantee US$ 2 million
Security
Pledge of SPV and Target’s shares
Lending Bank - Senior Debt Acquirer SPV Corporate Guarantee of the Indian Parent
Offshore Branch US$ 13 USA
Million Pledge of Promoters’ shareholders in the Indian
Parent company
Acquisition Mortgage of Target company brands
Consideration for 100%
stake Repayment
Cash flow Cash flow accrued at the Target level
available for
Acquirer to be Target Undertaking to capitalize the USA operations, if
utilized for USA
required
debt servicing
Time taken to conclude the financing: 2 months
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18. Contact Details
Corporate Executive Director
Email: director@lloydbancaire.com
Lloyd Bancaire Worldwide.
United States Luxembourg Hong Kong United Kingdom Singapore
www.lloydbancaire.com
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