28 mergers & acquisitions


Management buyouts – warranty issues addressed


On a typical management buyout (MBO) warranties are included in both a sale and purchase agreement (SPA) and an investment agreement (IA). They serve different purposes, writes solicitor Oliver Kelly of Lamport Bassitt


Warranties in an SPA are a price adjustment mechanism and/or a means of allocating risk for matters which come to light following completion.


In an IA, warranties usually relate to the business prospects of target and the business plan.


Warranties in the SPA


Warranties in an SPA seek to protect the buyer from undisclosed liabilities in target by seeking contractual assurance from the seller as to the state of target.


A key purpose of warranties in an SPA is to make the seller bring to the attention of the buyer points which are likely to concern the buyer. This is achieved by disclosing against the warranties. Disclosure also enables the parties to negotiate before completion the impact such issues may have.


To the extent that warranties are disclosed against, the buyer takes the risk. To the extent that warranties are given and not disclosed against, the risk remains with the seller. Thus, the buyer receives some comfort that if a warranty is inaccurate or not disclosed against, he can bring a warranty claim against the seller for damages.


Warranties in the IA


Management are generally asked to warrant key information on which the investor is basing its investment, primarily the business plan.


Additionally, investors often require management to complete, and warrant, a management questionnaire.


Warranties in the SPA generally relate to historic information


whereas in the IA they are generally looking towards future matters such as the business plan and forecasts.


Warranties in the IA also contain assurances from management that they have no knowledge of relevant, material, and undisclosed information that could impact on those assumptions or projections.


Two become OneCom in making of a formidable team


Two of the region’s fastest growing companies have joined forces under one brand, ensuring continued growth and creating more than 70 new jobs.


Premier Telecom Group and Business Phones Direct (BPD), which both have head offices at the Solent Business Park, Whiteley, have become OneCom. The business has a turnover in excess of £40 million and, with the tranche of jobs created by the move, a combined staff of nearly 300.


Premier Telecom Group is one of the largest independent providers of mobile voice and data, fixed line, IT and unified communication solutions. Managing more than 150,000 mobile lines and with a client list which includes names such as London Transport, NHS and B&Q, it boasts a level of customer retention that is virtually unheard of in the industry. As a result it has featured for the


www.businessmag.co.uk Darren Ridge (right) and Aaron Brown of OneCom


past two years in the prestigious Sunday Times Tech Track 100, which ranks Britain’s private tech companies with the fastest- growing sales.


BPD is an independent business phone company trading successfully with small and


medium-sized enterprises (SMEs) across the UK for more than a decade.


Darren Ridge, CEO of OneCom, explained: “We are in the throes of a communications revolution. The massive advances in communications technology have


created demand for an intelligent and converged approach for all businesses, SMEs and corporates. It is this demand which has been so exciting for both Premier Telecom and BPD in recent years – this move will ensure we can continue to respond to it.


“The new combined portfolio will offer the most advanced solutions to allow businesses of all shapes and sizes to capitalise on converged communications with enhanced capability including cloud technology, cross platform device management software, electronic forms and tracking and information management software.


“Customer service is at the heart of a business such as this. Premier Telecom is Vodafone’s number one Platinum Partner. We will retain our local focus through our regional offices, offering a level of ongoing support normally only delivered by smaller businesses.“


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – SEPTEMBER 2013


These are usually restricted in scope to the management’s reasonable opinion.


Limitations


A seller will usually seek to cap liability at the amount of the consideration and may have exposure under the tax covenant and for environmental matters for up to seven years.


Typically, management try to cap their financial exposure for breach of IA warranties at one to three times salary. Their limitation period is normally in the range of one to two years.


A manager may also be a seller and, if so, is likely to have liabilities under both the SPA and the IA, albeit of very different natures.


As in all commercial transactions much depends on the strength of the negotiating positions and the outcome of negotiation.


Details: Oliver Kelly 023-8083-1902 oliver.kelly@lamportbassitt.co.uk


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