*By Renee Kaddouch 

Doctor of Law - Lawyer at the Paris Bar | Partner at Squair  | Former Foreign Lawyer (Singapore) | Squair AARPI

Q. How is the operation structured?

R. K As with equity investments within a company, the acquisition will be made though a special purpose vehicle incorporated in Singapore (a “SPV”). Such SPV will be the target of the acquisition and will hold the shares in the subsidiary(ies) incorporated in other countries. If the SPV is incorporated for the purposes of the acquisition, the shares of the local subsidiaries should be transferred prior to the transaction and not simultaneously, as a condition to closing (to take into account of local difficulties - see below), and also to take into account the related taxation of capital gains, which is not always favourable. 

Q. What are the specificities that international buyers should keep in mind in negotiations? 

A.K Buyers should consider geographical distance and the local legal context. 

Regarding geographical distance, post closing, the decision-making centre should be in the field and not in the country of origin of the buyer. Consequently, in order to involve the seller in the business as much as possible, the acquisition will most often be completed in tranches, with a purchase of the majority of the shares and then a gradual purchase of the remaining shares over a couple of years. Obviously, the price of such remaining shares will be calculated during the initial negotiations and based on accounting or purely financial items. Similarly to a domestic acquisition, the seller has to ensure that the buyer has not leverage on the calculation, through items it can have influence over (e.g. via management fees) or that the buyer is prohibiting from competing the target or of entice away key employees, thereby limiting the seller's ability to achieve its objectives and thus reducing the purchase price of the remaining shares. 

The seller and the buyer will also enter into a shareholders' agreement to govern their relationships during this period of co-shareholding, in particular regarding with the future financing of the company, its governance (in particular one or several seats to the board of directors, which, under Singaporean law, runs the company, granted to the buyer and the prior authorization of such board for strategic operations) or the provision of a call option ever the shares of the sellers in case of her early departure (including a good and bad leaver clause). 

Q. How can the local context be taken into account? 

R.K Generally speaking, with the exception of Singapore, predictability, clarity and readability of the rule are not amongst the greatest strengths of South East Asian countries. For example, obtaining a government licence to do business is almost always required and often needs to be updated following an acquisition. Given the heavy bureaucracy and the hypertrophic regulatory zeal and related permanent legal confusion in the countries of the region, it would be unrealistic to provide as condition to closing a decision or one or more government agencies. It could delay the completion except to pospone it indefinitely.

To mitigate the related risk of the buyer to run the business illegally after the transaction, the seller will undertake to make its best efforts to obtain the administrative decision after closing. This undertaking, which is merely an obligation of means, will be sanctioned by the payment of an indemnity, in cash or in shares (the number of which will be calculated using a formula provided in the share purchase agrement). 

The parties will also have to take into account the lack of legal certainty when negotiating representations and warranties. If one of subsidiairy is incorporated in a country where the rule of law is weak, the seller wlll not represent and warrant, for example, that the activity in such country is carried out in full compliance with local laws. The seller cannot be certain is is so: even with the assistance of a lawyer, she may have breached an unknown secondary rule, or that another rule may be open to several contradictory constructions due to its lack of clarity... In such a case, she may compensate the buyer by having given a misrepresentation, unbeknownst to her. Any representation and warranty relating to facts tied to the local subsidiaries and beyond the seller’s control concerning regional subsidiaries must always be given "to the best knowledge of the seller". Otherwise, the seller may have unknowingly given a misrepresentation. In its own interest, the buyer should be flexible in this respect and accept that the business is run lawfully beyond a reasonable doubt, if we dare the expression . 

As a conclusion, whether regarding the geographical distance or the specificities of the legal systems, a cross-border acquisition in South-East Asia, not to mention the financial or operational aspects after its completion, cannot be negotiated in the same way as a similar operation in the Western world. 

*Doctor of Law and member of the Paris Bar since 2003, former foreign lawyer in Singapore, Renee assists her clients in mergers and acquisitions (domestic and cross borders), venture capital/private equity transactions. During the past 9 years, spent between South East Asia and Paris, she has developed an expertise in assisting SME, international companies and investment funds in their growth all over South East Asia, assisted by prominent local law firms. 

Renee was trained and practiced as a lawyer in French offices of top tier international firms. In 2012, she moved to Indonesia and later to Singapore to assist foreign investors in South East Asia, where she stayed until 2021. 

Renee has published numerous articles in corporate law in French legal reviews and economics newspapers in connection with her areas of practice. She speaks regularly at keynotes in France and all over South East Asia. 

Renee holds a PhD of private law from Aix Marseille III University, defended in December 2001.

**The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of LexUniversal.