M&A Alert

Considerations for the Acquisition of a Non-U.S. Company by a U.S. Public Company

February 10, 2017

When it is time to sell a company, there are a number of financial and legal steps a business should consider to ready itself for a merger or acquisition. When the potential buyer is a U.S. public company, that list may get longer. The following are some common issues that arise in the context of a U.S. public company acquisition of a non-U.S. company. Being familiar with, and prepared for, the pressure points facing a U.S. public company will make for a smoother acquisition process for both sides.


1. Purchase Price Adjustment vs. "Locking the Box"

In most U.S. acquisitions of a privately-held target company, the purchase price agreed to at the signing is subject to a closing adjustment and/or a post-closing adjustment based on the closing date amount of certain financial accounts; typically, cash, indebtedness, and net working capital. This differs from the “locked box” approach that is more common in Europe, whereby a buyer and seller agree on a fixed purchase price that is calculated based on a “locked box balance sheet”, which is fixed at an agreed upon pre-signing “locked box date”, and is coupled with representations and warranties from the seller that protect the buyer against the “leakage” of value from the target company to the seller between the time of the locked box date and the closing.

The U.S. approach generally requires more time be spent negotiating the complex accounting methodologies and accounts that will be used to adjust the purchase price (e.g., which assets and liabilities shall be applied to the adjustment and how will they be measured). Although the “locked box” approach is occasionally used in U.S. acquisitions, it remains a minority position and non-U.S. sellers of a privately-held target company should thus be prepared to have to negotiate these complex provisions when dealing with a U.S. buyer.

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