2. Tipos de Adquisiciones de empresas. Parte 1

Welcome and Introduction to Types of Acquisitions

In this section, the speaker introduces a new module on the course of buying and selling companies. The focus is on different types of acquisitions in the market.

Types of Acquisitions

• Buying Shares vs. Assets:

• Discusses the differences between purchasing shares, participations, or assets.

• Leveraged Buyouts (LBOs):

• Introduces leveraged buyouts as a specific type of acquisition.

• Mergers and Acquisitions:

• Briefly touches on mergers while indicating a future dedicated course on the topic.

• Buyer's Perspective:

• Explores what interests a buyer in acquiring assets over shares for selective control.

• Seller's Perspective:

• Examines why sellers prefer selling shares to enjoy financial gains without lingering liabilities.

Considerations in Acquisition Transactions

This part delves into key considerations during acquisition transactions, emphasizing the impact on buyers and sellers based on whether shares or assets are being sold.

Transaction Modalities

• Sale of Shares vs. Assets:

• Highlights that share sales are often preferred due to simplicity and cleanliness in contracts.

• Parties Involved:

• Differentiates how sellers become shareholders in share sales versus entities themselves in asset sales.

Financial Implications

• Money Reception Differences:

• Explains how money reception varies for sellers based on selling shares or assets, impacting tax implications.

Complexity Factors

• Formal Aspects:

• Points out that asset sales involve more complexity due to individualized asset selection compared to share sales.

Legal Considerations and Third-party Consents

This segment focuses on legal aspects and third-party consents required during acquisition transactions based on whether shares or assets are being traded.

Legal Compliance

• Share Sales Analysis:

• Discusses restrictions like preemption rights in share transfers within certain company structures like limited liability companies (LLCs).

Due Diligence Importance

• Contractual Clauses Examination:

• Emphasizes scrutinizing contracts for change-of-control clauses affecting loans, licenses, or agreements.

Employee Impact Assessment

• Employee Consideration:

• Notes that employee status remains unchanged with share sales but may vary for top executives; contrasts with asset sales requiring third-party consent authorization.

Detailed Legal Considerations in Asset Sales and Purchases

The speaker delves into the legal intricacies surrounding asset sales and purchases, emphasizing the roles of different governing bodies and the implications of such transactions.

Legal Authority for Decision Making

• The board of directors is responsible for approving asset purchases, while selling a majority or all essential assets exceeding 25% of the balance sheet value requires approval from the general meeting.

Considerations in Asset Transactions

• Different stakeholders may prioritize different approval processes; sellers may lean towards board approval, while buyers may prefer general meeting consent based on their perspectives on essential assets.

• Changes in creditor and debtor positions during asset transactions vary in notification requirements: creditor position changes need mere notification, whereas debtor position changes require authorization.

Implications on Leases and Labor Relations

• In urban lease scenarios, particularly concerning business premises, contract assignments can lead to up to a 20% rent increase by landlords. Asset sales can trigger company succession issues from a labor perspective.

Taxation Considerations in Sale of Shares vs. Assets

The discussion shifts towards tax implications when selling shares versus assets, highlighting differences in taxation treatment based on entity type.

Taxation Variances between Share and Asset Sales

• Selling shares as an individual incurs personal income tax (IRPF) on capital gains (sale price minus acquisition cost), whereas corporations are subject to corporate taxes on profits.

• Complete share sales may face double taxation if distributed as dividends post-sale due to separate taxation levels for corporations and individuals.

Exemptions for Corporate Shareholders

• Corporations with over 5% ownership lasting more than a year can benefit from exemption mechanisms under Article 21 of social tax laws to mitigate double taxation effects.

Prohibition of Financial Assistance & Impact on Mergers

Exploring prohibitions around financial assistance within capital society laws and its relevance post-acquisition mergers.

Financial Assistance Prohibition Impact

• Prohibitions outlined in capital society laws significantly affect share and participation sales; further implications arise if subsequent mergers qualify as leveraged buyouts under structural modification laws.

Leveraged Buyouts & Company Structures

• Detailed examination of leveraged buyouts as a company typology sheds light on complex financial structures post-acquisition mergers, offering insights into regulatory compliance challenges.

New Section

Explanation of leveraged buyouts in the context of company acquisitions, detailing how buyers finance a significant portion of the purchase price through debt.

Leveraged Buyouts in Company Acquisitions

• Definition of leveraged buyout (LBO) as a buyer acquiring a company or majority stake by financing a substantial part of the price with debt.

• Illustration using a house purchase analogy: Buyer uses a combination of personal funds and bank loans to acquire property, repaying the debt with rental income as collateral.

• Application to business context: Buyer purchases a mature company with cash flows, funding part of the price while banks contribute the rest, repaid from the acquired company's cash flows.

• Repayment mechanism: Debt repayment sourced from the target company's operational cash flows; collateral often includes shares or assets.

• Comparison to traditional mortgages: Instead of property mortgage, LBOs use shares or ownership stakes as collateral for debt repayment.

New Section

Discussion on leveraged buyouts within capital risk investments, emphasizing temporary nature and profit generation through operational improvements.

Leveraged Buyouts in Capital Risk Investments

• Link between LBOs and capital risk investments highlighted; focus on temporary investment nature involving operational enhancements for resale at higher value.

• Typical process involves acquiring companies with minimal resources but high leverage to enhance operations before selling at a profit.

• Types of LBO structures discussed:

• Management Buy Out (MBO): Existing management team supported by capital risk buys out the company leveraging its assets.

• Management Buy In (MBI): External management team acquires target company with leverage support.

• Bimbo: Combination of MBO and MBI involving internal and external management teams collaborating under capital risk backing.

New Section

Exploration of various LBO typologies beyond basic structures like MBO and MBI, including Employee Buy Out and Institutional Pay Out.

Diverse LBO Typologies

• Introduction to additional LBO types:

• Employee Buy Out (EBO): Key employees supported by capital risk make acquisition leveraging their roles within the organization.

• Institutional Pay Out: Institutional investors engage in leveraged acquisitions such as partner buyouts backed by capital risk funding.

• Public Private Takeovers: Leveraged acquisitions converting public companies into private entities through exclusion from stock exchange listing.

New Section

Detailed breakdown of financing components in an LBO scenario, outlining fund sourcing for acquisition deals.

Financing Components in Leveraged Buyouts

• Core elements involved in financing an LBO:

• Equity contribution from shareholders covers part of acquisition cost; remaining amount sourced externally.

• Syndicated loans utilized for large-scale acquisitions where multiple creditors participate due to high transaction costs.

[Detailed Overview of Financial Structure in Spanish]

This section delves into the intricacies of financial structures, focusing on debt arrangements and the hierarchy of payments within syndicated financing.

Debt Structure and Payment Hierarchy

• The debt structure includes Met Sanín's debt, which is part of a syndicated financing involving both banking and non-banking entities.

• Understanding the payment hierarchy is crucial; debts are prioritized based on seniority, with senior debts taking precedence over mezzanine debts and shareholders in case of insolvency.

• Syndicated financing involves multiple banks lending money, with one acting as the lead negotiator (bank agent), simplifying communication for the borrower.

Types of Financing Tranches

• Different tranches within senior financing serve various purposes such as funding acquisitions, refinancing previous debts, or investing in fixed assets like CapEx.

• The connection between senior and mezzanine debt signifies an agreement where Met Sanín acknowledges that senior debt must be repaid first before mezzanine lenders receive payments.

Risk and Cost Implications

• Mezzanine debt carries higher risk due to its secondary claim status, resulting in higher interest rates compared to senior debt.

Leveraged Buyouts and Sponsor Financing