Debt-funded M&A deals Down Under

Financial assistance in this context can take many forms – loans, a guarantee, or a charge over the target group’s assets. In cross-border M&As, an often-overlooked form of such assistance occurs when a target accedes to a buyer group’s financing arrangements, typically by giving security over its assets.

In a sale context, boards typically seek shareholder approval in a process commonly known as a “whitewash”. This involves the company’s shareholders, and in certain circumstances, those of its holding company, approving the assistance by a 75% majority resolution. The buyer is unable to vote. The law imposes prescriptive information requirements for the whitewash, and materials must be lodged in advance with the Australian corporate regulator, ASIC.

The key logistical issue in M&A transactions is the 14-day statutory wait period which must expire before a company can provide the financial assistance.

What this means in practice is that the whitewash takes around 17 days once you factor in notice requirements. It is therefore critical in an Australian M&A to consider early whether the deal involves financial assistance, and plan accordingly. The key takeaway for buyers looking to debt-fund Australian acquisitions is to determine in advance whether the financier requires security over target group assets immediately on closing, or whether it will allow a post-closing grace period to bring target group assets into the buyer’s security pool. To avoid causing significant delay, or additional cost and aggravation for all involved, financial assistance issues should be addressed early.

Just something to keep on your radar if your clients are looking to finance acquisitions in Australia.

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Photo: Leonid Andronov - stock.adobe.com