Are you planning to buy a company or existing business in Finland? Here’s a short article about the dos and don’ts that you should bear in mind when planning your acquisition.
Typical transaction steps
- Identify the target.
- Letter of Intent with the seller, which typically sets out the timetable for the acquisition, exclusivity (optional), main terms of the transaction, indicative purchase price (subject to due diligence) and due diligence details. You should always start the transaction with a Letter of Intent so that all parties are clear about the timetable and objectives.
- Due diligence. Review of past legal, financial and tax documentation to identify liabilities and items that will affect the purchase price.
- Negotiations and drafting of the transaction documents.
- Signing and closing the transaction. Sometimes the purchase agreement can be signed before the actual transfer of ownership takes place, as there may be regulatory approvals and other conditions precedent that must be met before the transaction can be closed. The structure of the transaction must, therefore, always be analysed on a case-by-case basis to fit the needs of the parties.
Due diligence
More often than one would hope, buyers don’t do their homework when it comes to due diligence of the target. They accept the information given by the seller at face value and don’t conduct independent due diligence. This is not a good practice, regardless of the complexity or size of the target business. You should always conduct due diligence before buying any business.
The money that you invest in a due diligence review will pay for itself because the probability of disputes will be dramatically lowered as all parties know what they are buying or selling and what the correct value of the target is. Remember that due diligence does not always have to cost you tens of thousands of euros. Even a more limited due diligence review conducted by professionals will benefit you, as seasoned M&A practitioners can identify issues relatively quickly due to their experience.
Key takeaway: always conduct your own due diligence review before buying any business, preferably with the help of professional advisors.
Valuation
So, how much is the business worth? The seller has presented you with a price tag, but are you sure that this is the correct economic value of the business or company? Please have a look at our previous article about company valuation that can be accessed here: https://www.wdlal.com/company-valuation-finland/.
Acquisition of business or shares
There are two main ways to buy a business in Finland:
- option A: business acquisition, i.e. buying the assets of a company; and
- option B: acquiring the shares of a company.
In an asset deal (option A), the buyer usually sets up a new company that will acquire certain assets of the target company. The assets may include machinery, stock, personnel, the trade name, vehicles, intangible assets, customer contracts, supplier agreements, or permits and licenses. By buying the assets, the buyer can opt not take over any unwanted elements or risks associated with the target company and only acquire the assets that it needs (although certain restrictions may exist in terms of cherry-picking the assets).
In a share deal (option B), the buyer acquires all or the majority of the shares of the target company. The existing financial and legal liabilities, both known and unknown, of the target business will remain unchanged. The operations of the target company continue seamlessly and all existing contracts remain in force without any renegotiations (subject to change-of-control clauses).
SPA & APA
Once the buyer has concluded the due diligence review, the parties can draft and finalise the purchase documentation, either a share purchase agreement (SPA) or an asset purchase agreement (APA). Once again, more often than one would hope, parties nowadays may want to use AI to draft their purchase documentation. This practice is ill-advised, or at least a lawyer should review the purchase agreement. One should also remember that AI has not conducted the due diligence review, which means that it may not be able to implement all findings into the transaction documentation. It is of utmost importance that the parties are able to protect themselves from any liability that should not be theirs to carry. Therefore, it is recommended to pay extra attention to the representations and warranties, as well as the indemnities and liabilities in the purchase agreement.
Key takeaway: if you draft your own transaction documents, let a lawyer review them for you. Also, it is good to bear in mind that sometimes it may be more cost-efficient for a lawyer to draft the agreement from scratch, instead of reviewing something that may or may not make sense.
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