Completing an Acquisition
The completion stage of any acquisition is dominated by the lawyers involved as most of the other professionals have already undertaken their diligence and reviews, and the lawyers are left to finally deliver the deal for the seller and purchaser, and not least the funder (who is paying for it!). As a consequence, everyone is pressing for a quick and effective completion, and no matter how well the previous stages of the deal have been executed, these are quickly forgotten if there is a delay at completion.
This is also a very important stage for the funder as this is when you have to make the final decision to release the funds, and you want to avoid having to make major commercial decisions at short notice. However, with good project management by your solicitors, you can effectively control your decision-making, and the transaction.
Whilst each of the parties involved in an acquisition are dependent on the performance of each other, there are a number of ways that the funders lawyers can help to progress matters.
As early as possible (usually once the initial draft facility letter has been revised) the solicitors should issue a Conditions Precedent ("CP") list to control what the funder requires to be satisfied with prior to releasing the funds. This list needs to be updated, and should be dealt with on a "no surprises" basis (i.e. the purchaser needs to be fully aware of exactly what it requires to deliver to satisfy the funder).
The funder's lawyer needs to identify if there are any CPs that will not be able to be physically delivered at completion – often the purchaser’s lawyer is concentrating on the acquisition as opposed to the availability of the CPs – as by controlling this now, this will save time, and compromises, at completion.
It is also important to agree where items are to be delivered. Often in multi-jurisdiction deals (e.g. Jersey Property Unit Trust deals – see previous article) there will be documents that require to be signed in different jurisdictions. As the funder will usually have representation in that jurisdiction, it would be practicable for documents to be delivered to such representatives to satisfy the CPs – this seems, and is, simple, but if it is not agreed at an early stage, it can cause confusion, and delays, later.
Assuming you have operated a well controlled CP list, what is next? The money. The transfer of funds is obviously essential, and needs to be planned in advance.
There are usually two stages in the flow of funds. First, the funds can be released to the lawyers (either purchaser or seller) but whilst this will have effected a drawdown (and the usual borrowing fees will be triggered), the money will still be under the control of the funder. Second, once all the CPs have been satisfied, release of the money to the control of the seller.
Sometimes, stage 1 is not required, and the funds will only flow once all CPs have been satisfied. But, often the funder will be under pressure to release the funds at stage 1 as it may take a few hours from instructing the funds flow, to receiving the funds. Also, the seller may be reluctant to start the completion process without being satisfied that the funds are available, and any delays in completion (caused by the funds flow) may have cost implications for the purchaser.
If stage 1 is to be implemented, it is important to be satisfied that the CPs can be satisfied (i.e. that all the documents are in agreed form and just need to be signed), and that you have a written undertaking from the relevant solicitors to hold the funds to the order of the funder, and confirmation of their PI cover!
Careful forward planning and control by the lawyers acting for the funder can ensure that completion occurs on time, with minimal stress for both the funder and its customer, which is the desired outcome for all. These concepts are not difficult or onerous, but it is essential to be able to deliver them during the pressure of a transaction.
For further information please contact: Alex Innes