Private M&A

Private M&A transactions in Singapore are primarily structured by way of a sale or purchase of issued shares in the capital of the target or the business of the target, pursuant to which its assets and liabilities are acquired or sold. Such arrangements are usually effected by way of a sale and purchase agreement entered into between the buyer and the seller.

Generally, in a share sale, all assets and liabilities associated with the target are transferred to the buyer. In an asset sale, assets may be individually transferred and liabilities typically remain with the target unless expressly assumed by the buyer.

Besides the factors mentioned in question 1.2, strategic considerations often influence the choice of transaction structure. Key factors include:

• business and commercial objectives;
• financial and operational synergy;
• the nature of the business of the target;
• regulatory, legal and tax considerations; and
• due diligence considerations and the related risk assessment.

When deciding whether to structure a sale as a competitive auction process, it is essential to conduct a cost-benefit analysis.

On one hand, an auction:

• allows the seller to enhance its bargaining power by setting the transaction parameters that guides its process when considering bids (ie, price and terms and conditions of the transaction); and
• sets the stage for potential value maximisation by creating a competitive environment.

Typically, the seller’s legal adviser in an auction process will also hold the pen on the suite of documentation required and will thus be able to state upfront the terms and conditions which are important to the seller.

On the other hand, the additional complexity and costs associated with an auction process may outweigh the benefits. The involvement of multiple professional advisers which are required to assist with the process and multiple bidding parties results in:

• protracted negotiations;
• higher professional fees; and
• more time spent to close the transaction.

Further, the seller will need to disclose confidential information to a wider group, given the multiple bidding parties, as opposed to a diligence process taking place between two parties.

There may also be circumstances in which an auction process is not suitable – for instance, where regulatory approvals and consents are required.

The parties to a transaction sometimes execute a preliminary document (eg, a term sheet, letter of intent or memorandum of understanding) recording the preliminary commercial terms of the transaction. While such documentation helps in setting the parameters of the negotiations, it is generally expressed not to be legally binding, with its terms subject to negotiation and documentation; however, it may contain legally binding provisions in relation to:

• exclusivity;
• confidentiality; and
• governing law.

Alternatively, parties may also enter into standalone non-disclosure agreements and exclusivity agreements prior to the commencement of the due diligence and negotiation process.

A non-disclosure agreement seeks to prohibit potential buyers from disclosing confidential information about the target that it obtains through the due diligence and negotiation process. An exclusivity agreement typically prohibits the seller from seeking or considering other potential buyers for a prescribed period while the parties negotiate.

Financial advisers, tax advisers and accountants may be engaged by a prospective buyer to assess the financial and tax implications and commercial viabilities of the potential transaction. Legal advisers are usually engaged by both parties – either concurrently or after the potential transaction has been initially assessed as being financially or commercially viable – to assist in drafting and finalising the suite of transaction, by:

• advising on transaction structure;
• negotiating the terms of the transaction (including any preliminary term sheet etc); and
• advising on any relevant regulatory requirements.

Directors and management are usually also heavily involved in the preparatory stages of a transaction, as they work together with the professional advisers to:

• evaluate the viability of the potential transaction; and
• determine the optimal transaction structure.

The rule against financial assistance as set out in Section 76 of the Companies Act 1967 of Singapore applies only to public companies and their subsidiaries and no longer applies to private companies whose holding or ultimate holding company is not a public company. As such, Singapore private companies in a private M&A transaction are not prohibited under Singapore law from paying adviser costs.

Due diligence in private M&A transactions in Singapore typically encompasses legal, financial and commercial due diligence.

Legal and regulatory: Legal due diligence is undertaken to confirm:

• the target’s legal compliance with applicable laws and regulations; and
• the terms of the target’s material contracts and the effects of the transaction thereon.

The legal adviser to the prospective buyer will typically review the target’s legal documents, regulatory permits, licences and so on to evaluate its compliance with applicable laws and regulations, including corporate, employment, environmental, social and governance and industry-specific regulations.

The legal due diligence process aims to identify, among other things:

• potential legal issues with the target’s operations;
• compliance gaps;
• change of control provisions in the material contracts of the target which may affect, restrict or otherwise prohibit the proposed transaction;
• any third-party consents and/or waivers which may be required in relation to the proposed transaction; and
• any potential, threatened or pending litigation.

Financial and tax: Financial advisers engaged by the prospective buyer should examine the target’s financial statements, accounting practices and tax records to identify potential financial risks, undisclosed liabilities or financial irregularities that could affect the financial viability of the deal. Such information is also crucial in determining the projected performance of the target.

Commercial: The prospective buyer should:

• evaluate the target’s market position, business strategy, growth prospects and the general industry landscape to assess the target’s commercial viability; and
• ascertain more commercially intangible factors, such as whether the target’s business objectives, values and philosophies are aligned with those of the prospective buyer.

Operational: The prospective buyer should conduct a thorough review of the target’s operations, including:

• supply chain management;
• service providers;
• material vendor/supplier and other commercial agreements; and
• technology systems.

This is relevant to both:

• regulatory compliance as part of the legal due diligence process outlined above; and
• operational synergies post-acquisition, ensuring that systems between the buyer and the target can be effectively transitioned or integrated.

The due diligence process involves the following steps:

• Acquisition of data: Acquiring relevant data is usually the first step in any due diligence process. The buyer’s legal advisers will draft a general due diligence questionnaire or checklist to request for relevant information and documents from the seller or target. The questionnaire sets out:
• • the areas of investigation; and
  • if necessary, a list of enquiries to be put to the management of the target.
• Setting up a data room: The target will establish and manage a data room, which is now typically virtual. Documents and information which are requested by the buyer will then be uploaded to the data room after being reviewed by the seller’s legal advisers to ensure that confidential or sensitive information about the target has not been inappropriately disclosed.
• Preparation of due diligence report: A due diligence report is prepared after the buyer’s legal advisers complete the due diligence process. This can take the form of:
• • a long-form report, which describes the target’s business in detail and summarises all documents reviewed in the due diligence process; or
  • an exceptions-only report, which highlights only red flags or material issues and risks to the potential buyer.

From the buyer’s perspective, due diligence seeks to identify risks or gaps which will inform negotiations between the parties with respect to:

• the purchase price; and
• the inclusion of certain contractual protections in the transaction documentation, including conditions precedent and indemnities.

For instance, where there are adverse findings or deficiencies, buyers may wish to:

• require that such deficiencies be remedied as a condition precedent to the transaction; or
• introduce performance-related and deferred consideration payments.

Specific indemnities may also be sought for identified risks.

The rigour of the buyer’s due diligence will depend on a number of factors, such as:

• the profile of the target;
• the typical areas of risk and liability;
• the deal structure;
• budget; and
• materiality.

From the seller’s perspective, the purpose of due diligence is to:

• advertise the target for sale; and
• assist in the process of disclosure against any representations or warranties made in the sale and purchase agreement.

At the same time, sellers must ensure that certain commercially sensitive or confidential information is not released to potential buyers.

Historically, ESG has not been a traditional consideration during the due diligence process of an M&A transaction in Singapore. However, it has gained traction in recent years, particularly in the following areas:

• environmental issues (waste disposal, emissions, resource consumption);
• health and safety (working conditions, compliance with safety protocols);
• employee commitments (incentives, diversity, equal opportunity, retention);
• supply chain activity (code of conduct, risk assessment);
• board structure (remuneration, decision-making process, composition);
• reporting standards and commitments; and
• security and risk management.

ESG factors are typically taken into consideration in identifying:

• reputational risks;
• areas for discounting price;
• opportunities to increase value post-acquisition; and
• cost management post-integration of the target.

Corporate approvals: Under Section 160 of the Companies Act, where a business sale involves the target disposing of all or substantially all of its undertaking or property, directors must not carry into effect any such proposals without the approval of the shareholders of the target in a general meeting.

In a share sale, the constitution and/or shareholders’ agreement of a target may contain selling or transfer restrictions for selling shareholders which, unless otherwise waived, may hinder and otherwise delay the acquisition process. Such restrictions commonly include:

• pre-emptive rights, which require the selling shareholder to offer its sale shares to other existing shareholders before such shares may be sold to a third party; and
• tag-along rights, which affect the ability of a selling shareholder to sell its shares in a deal that excludes other shareholders.

Regulatory approvals: There are generally no regulatory restrictions on a share or asset sale. However, regulation of certain industries in which a target operates or regulation of an asset may result in a need for regulatory approval of the transaction. For example, the transfer of shares in certain regulated entities such as licensed banks, insurers, capital markets services licence holders and trust companies is subject to approval by the Monetary Authority of Singapore.

There are generally no regulatory restrictions on foreign ownership of Singapore companies by way of shareholding. However, certain industries (eg, real estate, media companies, banks) are regulated in Singapore as a matter of national interest. As such, prior regulatory approval may be required in respect of:

• any foreign investment into such companies; or
• a transfer of ownership of such companies to foreign entities.

There are also prohibitions on the transfer to, or purchase or acquisition by, foreign persons of residential property (eg, landed residential property and land zoned for residential purposes) under the Residential Property Act 1976 of Singapore.

Participants should identify any existing material contractual arrangements pursuant to which third-party consents or waivers may be required in respect of the proposed transaction. These include material contracts with key counterparties such as employees, landlords, creditors, suppliers and customers.

In an asset sale, participants should identify provisions in material contracts that prohibit the assignment and novation of contracts.

In a share sale, participants should identify change of control provisions in material contracts which may allow counterparties to terminate or amend the contract upon a change in shareholding or ownership/control of the target beyond a stipulated threshold.

Documents for a private M&A transaction typically include:

• a letter of intent, term sheet or memorandum of understanding;
• a non-disclosure agreement;
• an exclusivity agreement;
• a sale and purchase agreement;
• corporate resolutions;
• a deed of novation or assignment (for an asset sale); and
• a share transfer form (for a share sale).

Legal advisers engaged by the different parties will draft, review and finalise the documents prepared for a private M&A transaction, with close involvement of the principals in negotiating and executing the documents.

A letter of intent, term sheet or memorandum of understanding typically contains key preliminary provisions to the M&A transaction, setting out:

• the parties to the agreement;
• the transaction structure;
• the consideration for the acquisition;
• any exclusivity period;
• confidentiality provisions;
• the timeline for completion; and
• the governing law for dispute resolution.

A confidentiality agreement or non-disclosure agreement restricts potential buyers from disclosing confidential information about the target that it obtains through the due diligence and negotiation process. An exclusivity agreement typically prohibits the seller from seeking or considering other potential buyers for a prescribed period of time while the parties negotiate.

A sale and purchase agreement then seeks to formalise the preliminary agreed terms and other key terms. The key terms set out in a sale and purchase agreement include, but are not limited to:

• the equity interest or asset being purchased;
• the amount and type of consideration (along with any mechanisms of determining the purchase price and the payout timeline/schedule);
• conditions precedent (ie, conditions which must be fulfilled or waived before closing of the transaction can take place);
• representations and warranties;
• covenants (undertakings which may cover pre-closing and post-closing obligations of either party and may include commercial covenants, financial covenants and information covenants);
• indemnities (to reimburse a party – usually the buyer – on a dollar-for-dollar basis in respect of a known contingent liability or risk should it materialise); and
• termination rights (circumstances under which the contract may be terminated, usually in the case of a material breach of material adverse event).

This is typically a matter of negotiation between the parties, as different jurisdictions may have different interpretations of contractual terms. It is therefore advisable for parties to expressly agree on a governing law, especially when:

• they are situated in different countries; or
• a company to be wholly acquired has subsidiaries in several countries.

In this regard, Singapore law is customarily used for transactions involving targets and/or buyers based and operating in Singapore, as it provides:

• familiarity and legal certainty for the parties involved; and
• additional benefits such as:
• • a well-established legal system; and
  • the enforceability of judgments.

Regardless of the governing law of an agreement, certain Singapore laws continue to apply to Singapore companies – for example, relating to:

• competition;
• employment; and
• company law governing the transfer of shares or assets.

In a sale and purchase agreement, discussions concerning warranties often revolve around:

• defining their scope and extent; and
• incorporating qualifiers such as materiality and the seller’s knowledge.

The seller ordinarily provides a longer list of representations and warranties. Representations and warranties that may be given by both seller and buyer include confirmation of their:

• due incorporation and solvency;
• validity; and
• full power and authority to consummate the transactions contemplated in the sale and purchase agreement.

Warranties typically provided by the seller will include the following:

• legal and beneficial title and ownership of the sale shares or assets;
• that the shares or assets are sold or transferred free from all and any encumbrances together with all rights and benefits;
• that the information provided regarding the target, such as that relating to accounts, is accurate;
• that the contemplated transaction will not infringe or constitute a default under any other agreements:
• • to which the seller or the target is a party; or
  • by which the seller and/or target or their respective assets are bound;
• that the contemplated transaction will not result in a breach of any laws;
• compliance by the seller and target with anti-bribery, corruption, terrorist financing and money-laundering requirements;
• the adequacy of insurance taken out by the seller and target;
• compliance by the seller and target with data protection laws;
• compliance by the seller and target with environmental laws;
• that no litigation, investigation or proceeding has been commenced or is intended to be commenced against the seller or target;
• that there has been no material adverse change to the seller and target;
• that no taxes are due or outstanding by the seller and target;
• compliance by the seller and target with employment laws and benefit plans;
• that the target has beneficial title to all assets and IP rights required to operate the business as currently being operated;
• that the target has not entered into related-party transactions; and
• that the target is not in breach, and the seller has no knowledge of termination, of any contract with a material supplier or customer.

Buyers may seek a specific indemnity in respect of identified risks of contingent liability when they materialise. This may include:

• known proceedings or claims against a target; or
• tax and environmental liabilities that were identified during the due diligence process.

Examples include the following:

• A buyer may require the seller to provide a tax indemnity in respect of all tax liabilities of the target to the extent that they are not provided for in the latest audited accounts or disclosed to the buyer.
• Where the target is involved in any unresolved litigation, the buyer may require the target/seller to bear the risk of the outcome of the litigation proceedings.
• An indemnity may be agreed for product liability claims in relation to any products sold by the target before completion.

A breach of warranties by the seller/target resulting in quantifiable loss gives the buyer a right to claim damages in order to be put in the position as if the warranty had been true. Misrepresentations by the seller give the buyer the right to rescind the contract or to claim for damages for any losses that the buyer suffers as a result of inaccuracies of the statements made by the seller during negotiations that induced the buyer to enter into the transaction. Where damages are inadequate to compensate the party not in breach for losses, the court may also grant equitable remedies such as specific performance and injunctive relief.

Besides contractual claims, a party may also bring a tortious claim against a seller for fraudulent misrepresentation and negligence.

In Singapore, any action arising from a breach of contractual obligation or a tortious claim must be commenced within six years of the date on which the contractual breach or tortious act occurred.

In a sale and purchase agreement, representations are typically divided into:

• fundamental representations and warranties – that is, those pertaining to:
• • due incorporation and valid transfer of title of shares; and
  • validity and full power and authority to consummate the transactions contemplated; and
• non-fundamental representations and warranties.

Fundamental representations will have a survival period ranging from indefinite to the applicable statutory limit. For other representations, claims with respect thereto will survive two to five years post-completion.

Typical limitations to liabilities include:

• limitation of the seller’s aggregate liability at an amount equal to or less than the purchase price (usually expressed as a percentage of the purchase price);
• limitation of the seller’s liabilities to contractual remedies only and excluding tortious remedies;
• a de minimis threshold for any claims;
• a time limit within which a claim must be brought;
• provisions requiring a party to exhaust available remedies prior to making any litigious claim;
• no claim for loss of profit, business, contract or indirect/consequential loss, and/or where provision for the matter has been made in the accounts; and
• no claim for losses resulting from a change in law.

Singapore has experienced an increase in the use of warranty and indemnity (W&I) (buy-side) insurance in M&A transactions. Parties are more cognisant of the benefits of W&I insurance and increasingly use W&I insurance to bridge any potential gaps in a deal. In particular, there is a heightened appreciation that W&I insurance helps to preserve any continuing relationship between the seller and the buyer or business post-sale by allowing the buyer to make its claims directly against the insurer instead of the seller. W&I insurance also helps to bridge gaps when sellers are unwilling or unable to provide or stand by certain warranties, commonly in the case of distressed deals. The use of synthetic warranties allows an insurer to give certain warranties directly to the buyer rather than insuring the warranties provided in the sale and purchase agreement.

As a matter of risk management, buyers typically want assurance that the seller has the capacity to fulfil its contractual obligations and any potential indemnification claims that may arise post-closing. Generally, the buyer will consider the following approaches to obtain such assurances:

• structuring the deal in a way so that part of the purchase price is not paid upfront, but is retained by the buyer for a specified period to provide security to the buyer against any potential post-closing claims;
• where the seller is a subsidiary company, seeking a guarantee from its parent company to ensure financial support in case of indemnification claims; and
• requesting thorough records of the seller’s accounts and financial statements during the due diligence process.

It is common for parties to include post-closing restrictive covenants such as:

• non-compete clauses;
• non-solicitation clauses; and
• confidentiality clauses.

However, such restrictive covenants must:

• protect the legitimate proprietary rights of the buyer;
• be reasonable in scope, duration and geographical limitation; and
• not be against the public interest.

What is considered ‘reasonable’ varies based on:

• the nature of the business;
• the industry; and
• prevailing market practices.

As a general rule:

• geographical scope should be reasonably limited to the areas in which the buyer’s business operates;
• the durations for non-compete and non-solicitation clauses vary between one and three years; and
• the durations for confidentiality clauses vary from two years to indefinite time periods.

It is common in a private M&A transaction to include a MAC clause to protect the buyer from any negative developments that could affect the value or viability of the target in a deal. Such a clause will typically allow the buyer to renegotiate the terms or even walk away from the deal. However, the definition of what constitutes a ‘material adverse change’ should:

• be negotiated between the buyer and seller; and
• be clearly specified in the transaction documents.

Sometimes, this excludes any of the following, to the extent that they do not have a disproportionate adverse impact on the company relative to other persons in the affected geographic regions or the industry or market sectors:

• changes in political conditions;
• changes in general economic, business, regulatory or financial or capital market conditions; or
• changes generally affecting the relevant industries or market sectors.

A bring-down of warranties requires a party – usually the seller – to repeat the representations and warranties that were made at signing on the closing date. This:

• protects the buyer against the risk of unknown adverse circumstances that may arise between signing and closing; and
• gives the buyer the right to claim for damages or to walk away after signing.

However, sellers are typically hesitant to provide repeated warranties at completion, as doing so entails assuming the risk of unforeseen events occurring after signing. As a compromise, parties may agree for repetition of specified key warranties only. Alternatively, a buyer may permit the seller to update any disclosure letters which allows the seller to disclose the occurrence of any such events after signing, so that, with the agreement of the buyer, the seller will not be liable to indemnify the buyer for such disclosed events which occurred between signing and completion. As this is a strategic risk allocation exercise, the party with stronger bargaining power can shift more risk to the other party.

Other common conditions precedent that are included in transaction documents include the following:

• Regulatory approvals: Where the transaction is contingent on the receipt of necessary approvals from authorities, including the Competition and Consumer Commission of Singapore.
• Third-party consent: Where the change in ownership of a company:
• • triggers change-of-control provisions in third-party contracts; or
  • requires the consent of these third parties, such as key customers, suppliers, financing banks or other contractual counterparties.
• Shareholder approval: Where the transaction involves a significant change in the ownership or structure of the buyer, in which case it may require approval by the shareholders of the target.
• Compliance with laws: Where both parties confirm that the transaction complies with applicable laws and regulations in Singapore and any other relevant jurisdiction.
• No litigation: Where the parties assure that there are no pending or potential legal actions or claims against them that could adversely affect the viability of the target.
• Financing and solvency: Where the buyer affirms that it has sufficient funds or financing to complete the transaction.

Cash is the most common form of consideration in private M&A transactions in Singapore. Other forms of consideration offered include:

• shares in the buyer;
• debt in the form of loans or promissory notes; or
• a combination of the above.

Cash is the most common form of consideration for M&A transactions in Singapore. Using other forms of consideration is a commercial choice as between parties.

The choice of consideration may be influenced by:

• the strategic objectives of each party in allowing the seller to acquire interest in the buyer;
• the buyer’s cash position and access to financing (ie, debt, equity fundraising, group company loans or cash reserves);
• the tax implications of each form of consideration;
• market conditions, particularly in the buyer’s industry;
• the seller’s risk tolerance and preference for certainty in the value of its consideration;
• the time and costs needed to comply with regulatory requirements (eg, disclosure documents, regulatory approvals);
• the level of debt in the target, which could disincentivise the buyer from issuing loan notes;
• the liquidity of the shares offered as consideration (ie, whether the shares are listed on a recognised investment exchange, the anticipated volatility of share prices in that industry);
• the impact on the capital structure; and/or
• transaction costs.

The price mechanism is typically agreed upon through a structured negotiation process but, more often than not, the buyer makes the first offer or proposal of the price mechanism. The underlying commercial principle of the transaction plays a crucial role in determining the price mechanism adopted and is often a key point of negotiation between the parties.

Completion accounts mechanism: The completion accounts mechanism allows both parties to agree on an estimated purchase price based on the enterprise value of the target, which is calculated using certain assumptions about the target’s financial position. The final purchase price is determined post-completion by accounting for the seller’s actual financial position at the completion date and any differences from the preliminary purchase price will be resolved through a purchase price adjustment.

Locked-box mechanism: Under the locked-box mechanism, the parties fix the final purchase price based on the more recent audited accounts of the seller at a pre-determined date, known as the ‘locked-box date’, with a key aspect being that no value should ‘leak’ before the completion date. This means that no value of the target should be extracted by the seller between the locked-box date and the completion date. Typically, the buyer will:

• identify possible sources of leakage and permitted leakage (eg, expenditure in the ordinary course of business); and
• impose restrictions in the sale and purchase agreement and back any leakage with a dollar-for-dollar indemnity.

Generally, the completion accounts mechanism is more common in Singapore. It ensures that both parties close the deal on the most updated information available. However, there has been a growing trend for parties to opt for the locked-box structure instead. This is likely due to its simple and straightforward nature:

• Certainty on the purchase price is locked in at the early stages of the transaction; and
• It is operationally efficient.

While it would be ideal and the smoothest option for the parties for the purchase price to be paid in full, deferred consideration, earnouts and escrow holdbacks are common payment arrangements for buyer security and allow buyers to hedge against underperformance or contingent liabilities that may arise after completion.

The common safeguards set in place include the following

• Post-completion veto rights: Sellers may seek veto or approval rights over significant decisions that would impact the performance of the target – for example:
• • changes to the seller’s business strategy;
  • significant expenditures; or
  • entry into new partnerships.
• Information rights: Sellers may seek the right to monitor the performance of the business during the earnout period and assess whether earnout targets are being met. This will involve the provision of financial reports and operations updates.
• Operational involvement: Sellers may negotiate for continual involvement in the business to ensure that earnout goals are met. This could include things such as consultation rights or involvement in key decision-making and management processes.
• Earnout metrics: When structuring the deal, sellers should clearly define the earnout metrics in order to avoid disputes or ambiguity, particularly with financial targets or performance indicators.
• Financial guarantees: Sellers may negotiate for buyers to attain financial guarantees to ensure that earnouts are properly paid out, particularly if the seller is concerned about the buyer’s financial position.
• Dispute resolution mechanism: Sellers may wish to establish a clear and efficient dispute resolution mechanism such as arbitration to resolve any disagreements regarding the calculation or payment of earnout amounts in a timely and cost-effective manner.

The ‘giving of financial assistance’ is defined under the Companies Act as the provision of financial assistance by means of:

• the making of a loan;
• the giving of a guarantee;
• the provision of security;
• the release of an obligation; or
• the release of a debt or otherwise.

The rules against financial assistance as set out in Section 76 of the Companies Act apply only to public companies and their subsidiaries, and do not apply to private companies whose holding or ultimate holding company is not a public company. As such, target private companies in a private M&A are not prohibited from providing financial assistance to potential buyers in connection with the acquisition of their own shares and shares in their holding companies. This may include the target providing a loan to the buyer to fund the acquisition of the target’s own shares.

Prior to providing financial assistance, the board of directors of the target typically needs to pass a resolution:

• stating that:
• • the financial assistance from the target is approved; and
  • the terms and conditions of the financial assistance are fair and reasonable to the target; and
• setting out the grounds for providing such financial assistance.

Notwithstanding the ability of private companies to provide financial assistance and any board resolutions approving such financial assistance, directors of the target are not relieved of their duties to act honestly and in the best interest of the target in doing so.

Post-completion costs: When financing the deal, parties may wish to simultaneously seek out financing for any anticipated post-completion costs. For example, post-completion integration between the target and the buyer’s operations, systems and personnel may require additional advisory services to resolve, which could incur extensive costs. Engaging post-completion financial planning services may also be important for both parties to effectively manage their new working capital and any potential debt either party may have incurred as a result of the transaction.

Financing terms: Parties that are seeking debt financing should:

• consider the prevailing interest rates, repayment schedule and other financing terms that affect the overall financial viability of the deal; and
• negotiate favourable terms where possible.

Parties may also consider hedging against interest rate fluctuations to minimise exposure to uncertain interest costs.

Currency: When a foreign entity is involved in a private M&A transaction, parties should agree on a standard currency in which to conduct the deal, in order to:

• provide clarity to the terms; and
• mitigate the potential for misunderstandings.

Parties should also:

• consider currency risks and fluctuating foreign exchange rates between the agreed currency and their local currency, if any; and
• perhaps even mitigate exposure to such fluctuations by way of hedging instruments.

Value analysis is first done to identify potential buyers or sellers and initiate negotiations. Subsequently, parties will outline key terms in a preliminary term sheet or letter of intent. Parties then engage in extensive due diligence, including legal, financial, environmental, health and safety (where applicable) and tax due diligence. Based on the findings, negotiations of the key commercial terms may continue in parallel with the drafting of definitive transaction documents, such as the sale and purchase agreement. Once finalised, the parties will proceed with signing of the definitive agreements, after which the parties will address or fulfil any conditions precedent stipulated in the agreement before completion takes place. These conditions include obtaining the necessary consent and approvals from the target’s shareholders and/or the relevant regulatory authorities. After fulfilling the conditions precedent, the parties will then proceed to close the deal.

Most of the definitive agreements and documents relating to the conditions to completion are signed prior to closing (but oftentimes dated as of the closing date) and parties sometimes organise a pre-closing meeting where the relevant representatives from both the buyer and sellers come together to:

• exchange the relevant documents prepared for completion; and
• execute any outstanding documents to satisfy all the completion conditions for the anticipated completion date.

Documents typically signed on the closing date include:

• the share certificates in respect of the sale shares and valid share transfer form(s) duly executed in favour of the buyer; and
• a certificate by the seller certifying that the conditions precedent has been fulfilled, including certifying that all warranties in the sale and purchase agreement have been complied with.

The seller will first check for any share transfer restrictions or pre-emptive rights in the target’s constitution or existing shareholders’ agreement. The seller then executes a share transfer form in favour of the buyer. A share transfer is often subject to the board’s approval and a transfer request will be submitted by the seller for board approval by way of a board resolution. Within 14 days of execution of the instrument of transfer, the seller must pay stamp duty on the share transfer. Upon obtaining board approval, the seller will surrender its original share certificate to the target for cancellation. Once the share certificate is received, the board submits a notice of transfer to the Accounting and Corporate Regulatory Authority (ACRA). The transfer becomes effective once ACRA has updated the electronic register of members of the target. Within 30 days of registering the transfer with ACRA, the target will issue a new share certificate to the buyer.

The seller and/or its advisers may be held liable for misleading statements, misrepresentations, omissions and fraud post-closing. However, one must be careful to ensure:

• adequate coverage of representations, warranties and covenants in the sale and purchase agreement; and
• that a claim does not fall outside any period-specific restrictions and any other limitation of liability clauses.

Advisers may generally be liable for negligent misrepresentation. However, the sale and purchase agreement may also include an express clause prohibiting parties from bringing a claim against each other’s advisers.

Post-closing steps that may be taken into consideration include:

• the integration of:
• • new management and/or employees;
  • information technology systems and platforms;
  • operational systems; and
  • financial systems;
• any necessary updates to contracts; and
• any post-closing adjustments specified in a sale and purchase agreement, such as working capital adjustments or earnout provisions.

Section 54 of the Competition Act 2004 of Singapore prohibits mergers and acquisitions of control that would result in a substantial lessening of competition in Singapore, as determined by the Competition and Consumer Commission of Singapore (CCCS). This prohibition is extraterritorial in nature and applies to companies based outside of Singapore if:

• the companies have substantive operations in Singapore; and
• the merger has a sufficient anti-competitive effect in Singapore.

The CCCS provides indicative merger thresholds for anti-competition – namely, that competition concerns may arise if:

• the merged entity will have a market share of 40% or more; or
• the merged entity will have a market share of 20%–40.0% and the post-merge combined market share of the three largest companies is 70% or more.

While companies are not obliged to notify the CCCS of potential mergers, merging parties are encouraged to perform a self-assessment to determine whether their merger will lead to a substantial lessening of competition and may even consult the CCCS for such determination.

Pursuant to the information outlined in question 9.1, while there are no mandatory merger control requirements in Singapore, it is advisable to notify the CCCS if either:

• the merged entity will have a market share of 40% or more; or
• the merged entity will have a market share of between 20%–40% and the post-merger combined market share of the three largest companies is 70% or more.

Under current employment laws in Singapore, there is generally no statutory or regulatory requirement for a company to consult its employees in a private M&A transaction. There are provisions under Section 18A of the Employment Act 1968 of Singapore that may be triggered in a transfer of business such as an automatic transfer of employment and the rights, powers, duties and liabilities in relation thereto. Additionally, if the employee has a stake in the company by way of an employee share option arrangement, or if certain employees are parties to a shareholders’ agreement under such arrangement, consultation obligations may arise pursuant to contractual provisions in such agreements.

Under Section 18A(5) of the Employment Act, as soon as it is reasonable and before a transfer takes place, the target must notify affected employees and the trade union of affected employees, if any, to enable consultations to take place. Such notification should include:

• the fact that the transfer is to take place, the approximate date on which it is to take place and the reasons for the transfer;
• the implications of the transfer and the measures that the target envisages taking in connection with the affected employees or, if the target envisages that no measures will so be taken, that fact; and
• the measures that the buyer envisages it will take in relation to such employees that will become employees of the buyer after the transfer or, if the buyer envisages that no measures will be so taken, that fact.

Under the Employment Act, employees are automatically transferred in a share acquisition as there is no change in employer. In a transfer of business:

• transfers of employees covered by the Employment Act are deemed to automatically occur at the completion of the transfer of the business; and
• such employees will be employed on the same terms prior to the transfer and there is no break in the employee’s period of employment, unless otherwise stipulated or agreed upon.

However, these transfer rules do not apply to persons not covered by the Employment Act. Unless otherwise provided for such employment contract, the employment of non-Employment Act employees is usually transferred via:

• termination of their existing employment contract with the target; and
• the eentry into a new employment contract with the buyer.

Under the Employment Act, in a transfer of business, employees covered by the Employment Act enjoy:

• automatic transfer of employment contracts transferred on their existing terms to the buyer, together with all rights and duties attached;
• continuity of the period of employment; and
• consultation rights with trade unions (where applicable).

There is no public pension scheme in Singapore. The Central Provident Fund (CPF) is a compulsory comprehensive savings scheme for working Singaporeans and permanent residents that is funded by contributions from employers and employees.

In a share acquisition, the target will continue to be responsible for these contributions under the CPF. In a business acquisition, the buyer – being the new employer – will be responsible for contributions under the CPF scheme in respect of eligible employees under the Employment Act.

The question as to whether a person is classified as an employee is, to an extent, one of contractual interpretation, in which due regard should be had for the parties’ intentions. Therefore, as a matter of good practice:

• the classification of the employee status should be clearly evinced in either:
• • a contract of service (ie, an employer-employee relationship); or
  • a contract for service (ie, an independent contractor); and
• key terms that regulate the rights, liabilities, duties and obligations of the parties should be clearly set out. For example, statutory benefits are generally not in a contract for service.

Where parties have either inadvertently or deliberately used a label (eg, of an independent contractor) that does not match the reality of their working relationship, under Singapore law, the courts will depart from the express wording of the contract (eg, by finding that the worker was in fact an employee).

In distinguishing between a contract of service and a contract for service, the Singapore courts adopt a flexible, fact-sensitive and multi-factorial approach. Although there is no single conclusive test that is determinative of whether a person is an employee or a mere contractor or supplier for services, the factors that may be taken into consideration in determining whether it is a contract of service or contractor for service include the following:

• Control:
• • Who decides on the recruitment and dismissal of employees?
  • Who pays for employees’ wages and in what ways?
  • Who determines the production process, timing and method of production?
  • Who is responsible for the provision, supervision and oversight of work?
• Ownership of factors of production:
• • Who provides the tools and equipment?
  • Who provides the working place and materials?
• Economic considerations:
• • Is the business carried out on the person’s own account or is it for the employer?
  • Can the person share in profit or be liable to any risk of loss?
  • How are earnings calculated and profits derived?

Such factors are evaluated in context and with reference to other considerations such as industry practices and the parties’ intentions. For example, the factor of control is less significant where the employee has been retained on account of his or her special skills or expertise. To the effect that where the worker has particular skill and expertise, the employer cannot direct the worker as to how to carry out his or her work and the factor of control becomes of little use as a conclusive test.

Participants should:

• identify key employees who are critical to the success of the acquired business; and
• implement retention strategies – such as share option plans, performance bonuses or equity grants – to retain key talent during any transition.

Participants should also ensure compliance with local or international employment laws where relevant, including regulations in relation to:

• termination;
• redundancy; and
• employee consultation.

The Personal Data Protection Act 2012 of Singapore (PDPA) governs the protection of personal data and is administered and enforced by the Personal Data Protection Commission (PDPC). The PDPA regulates the collection, use and disclosure of personal data and imposes data obligations on organisations (as defined under the PDPA). These data obligations are categorised into 10 broad categories:

• Accountability: Undertaking measures to ensure that data obligations under the PDPA are met, including making available information on the organisation’s data protection policies, practices and complaints.
• Notification: Notifying individuals of the purposes for which the organisation is intending to collect, use or disclose their personal data.
• Consent: Collecting, using or disclosing personal data only for purposes which have been consented to.
• Purpose limitation: Collecting, using or disclosing personal data only for the purposes that a reasonable person would consider appropriate under the given circumstances fand for which the individual has given consent.
• Accuracy: Ensuring that data collected is accurate and complete.
• Protection: Ensuring that reasonable security arrangements are made to protect the personal data in the organisation’s possession to prevent unauthorised access or other data breach risks.
• Retention limitation: Ceasing retention of personal data when it is no longer needed for any business or legal purpose.
• Transfer limitation: Transferring personal data to another country only according to the requirements prescribed under the regulations, to ensure that the standard of protection is comparable to the protection under the PDPA, unless exempted by the PDPC.
• Access and correction: Upon request, providing individuals with access to their personal data as well as information about how the data was used or disclosed within a year before the request. Organisations must also:
• • correct any error or omission in an individual’s personal data as soon as practicable; and
  • send the corrected data to other organisations to which the personal data was disclosed.
• Data breach notification: If a data breach likely results in significant harm to individuals and/or is of significant scale, notifying the PDPC and the affected individuals as soon as practicable.

An eleventh proposed obligation that has yet to be implemented under the PDPA is the data portability obligation, which is, upon request by an individual, to transmit such individual’s personal data in its possession or under its control to another organisation in a commonly used machine-readable format.

In an M&A transaction, parties should take note of these obligations when handling any type of personal data. Given the extensive amount of data that is subject to the due diligence process during an M&A transaction, it is often not practicable to obtain the consent of every person whose personal data is involved. As such, the PDPA has carved out an exception to the consent requirement when a company purports to disclose data to a third party for purposes of an M&A transaction.

Business asset transaction exception: Under existing provisions of the PDPA, an organisation which is undertaking a ‘business asset transaction’ may disclose personal data of its employees, independent contractors, customers, directors, officers or shareholders without obtaining consent from the relevant individuals. As defined in the PDPA, ‘business asset transactions’ include:

• transactions such as mergers and acquisitions sales of shares, transfers of controlling power or interests, corporate restructurings and reorganisations in cases that involve ‘an interest in an organisation’; and
• amalgamations with or transfers to related companies.

Besides compliance with the PDPA in an M&A transaction, proactive planning and due diligence in the area of data protection will contribute to a smooth and legally compliant transaction and beyond. Among other things, this involves:

• establishing clear data protection and transfer policies from the due diligence stage onwards;
• drafting robust data protection contractual clauses;
• ensuring continuous compliance monitoring; and
• staying informed and updated on data protection laws.

It is also pertinent to consider other applicable data privacy laws in cross-border M&A transactions, such as the EU General Data Protection Regulation (2016/679).

The allocation of liability for the clean-up of contaminated sites is usually specifically negotiated between the buyer and seller and is typically set out in the sale and purchase agreement. The outcome of the buyer’s environmental assessment and identified risks during due diligence plays a key role in determining this allocation. For example, the seller may be required to provide environmental representations and warranties whereby, save as already disclosed to the buyer:

• there are no contaminated sites present;
• the business or assets of the target are and have been in compliance with environmental law; and
• there are no pending or threatened environmental proceedings against the target concerning its business or assets.

If the results of due diligence have identified an issue, but the magnitude of the liability cannot yet be calculated, the parties may also agree for the seller to indemnify the buyer:

• against future environmental liabilities; or
• in the event that it breaches an environmental representation and warranty.

Parties may also consider environmental liability insurance to cover any liabilities arising from site contamination.

Conducting comprehensive environmental due diligence is important to identify potential liabilities and regulatory compliance issues which may help to avert significant financial obligations in the future. These risks may be direct, indirect and even reputational. For cross-border transactions, it is pertinent to be aware of the relevant environmental legislation. Attention should be paid to:

• the target’s waste management practices;
• whether it has necessary environmental permits for its business operations; and
• any threatened or ongoing investigations for breaches of environmental law.

Additionally, an informed view on contingent liabilities, remediation costs and post-acquisition integration plans will contribute to effective environmental risk management. Parties should consider engaging expert service providers to conduct environment due diligence and/or industry experts to navigate the complexities associated with industry-specific environmental factors in M&A transactions.

M&A scheme: The Singapore government has implemented a temporary incentive scheme that grants an M&A allowance to qualifying share acquisitions up to 31 December 2025 (both dates inclusive), subject to specific conditions. As such, parties should consider the transaction structure and the eligibility of the buyer and target (as the case may be) with this in mind. The M&A allowance is amortised over five years and cannot be deferred. Companies must also fulfil certain conditions to remain eligible for the M&A allowance for each year of assessment during the five years. Under the scheme, a qualifying buyer which makes a qualifying share acquisition may (subject to conditions) also enjoy a stamp duty relief and a double tax deduction on transaction costs incurred on the qualifying share acquisition.

Stamp duty: Stamp duty is payable on documents relating to the sale or transfer of immovable properties and shares. In a share sale, stamp duty payable on the transfer of shares of a private company in Singapore is at a prevailing rate of 0.2% of the purchase price or the net asset value of the shares, whichever is higher.

In an asset sale, if the asset is a real property, the amount of stamp duty payable by the buyer on the transfer can be substantial and increases progressively with the purchase price or market value of the property.

The disposal of certain types of properties within a certain period may also attract seller’s stamp duty – for example:

• residential properties purchased on or after 20 February 2010 and disposed of within the holding period; and
• industrial properties acquired on or after 12 January 2013 and disposed of within the holding period.

There are exemptions from the seller’s stamp duty for both residential and industrial properties under the Stamp Duties Act 1929 of Singapore.

Goods and services tax (GST): In Singapore, movable assets are subject to a goods and services tax at a prevailing rate of 9% as of 1 January 2024. Transfer of shares are not subject to GST. If the business (whole or part thereof) is transferred as a going concern:

• the supply of the related assets may be treated as an excluded transaction; and
• GST is not chargeable on the transfer of assets as a result.

To qualify as an excluded transaction, the transfer of business assets must satisfy all of the following conditions:

• The supply of assets must be made in connection with the transfer of a business. It must not be a mere transfer of assets. The transfer of assets must have the effect of putting the transferee in possession of a business.
• The transferred assets must be used to carry on the same kind of business as that of the transferor.
• If only a part of the business is transferred, this part of the business must be able to operate on its own.
• After the transfer is completed, there must be continuity of the business. There should not be immediate termination of the business, other than temporary closures to allow the business to be operationally ready.
• The transferee must already be a taxable person or must immediately become a taxable person as a result of the transfer.

Participants may minimise their tax exposure by conducting tax due diligence to identify potential tax risks and liabilities regarding the structuring of a deal. Whether a deal is structured as a share sale or asset sale may greatly impact tax exposure. For example, generally, interest and other financing costs incurred by the buyer in a share acquisition will not be tax deductible. The form of consideration (ie, cash or shares) used for the transaction may also result in different tax implications.

Generally, for income tax purposes:

• each company within a group is a single corporate legal entity, although they may be related to each other through common shareholding; and
• the tax liability of each company within the same group is determined separately.

However, subject to certain conditions, the Inland Revenue Authority of Singapore has a group relief system which recognises group companies as a single entity by allowing the current year unabsorbed capital allowances/trade losses/donations of one company to be offset against the assessable income of another company belonging to the same group.

These conditions include, but are not limited to, both companies:

• being incorporated in Singapore and belonging to the same corporate group; and
• having the same accounting year end.

For the purposes of group relief, two Singapore-incorporated companies are part of the same group if:

• one company beneficially holds at least 75.0% of the total number of issued ordinary shares in the other company, directly or indirectly; or
• at least 75% of the total number of issued ordinary shares in each company is beneficially held, directly or indirectly, by a third Singapore incorporated company (ie, the relevant holding company).

Government incentives: In addition to the M&A allowance set out in question 13.1, the Singapore government offers various tax incentives to encourage business activities. Parties may wish to avail of the tax deductions on qualifying expenditures such as research and development and IP registration. This is particularly relevant for the buyer to consider (and the seller if consideration is fulfilled in part by shares in the buyer) for any post-completion business activity.

Financing structure: Parties, particularly buyers, should consider the tax implications of the financing structure of the deal (debt versus equity). Generally, in Singapore, interest and other financing costs incurred on loans or borrowings are deductible for tax purposes if they are taken to finance income-producing assets. In a share sale, any interest and financing costs incurred to acquire shares in a Singapore company are not tax deductible, since the acquired shares generate tax-exempt dividends. Conversely, in a business sale, any interest and financing costs incurred to acquire assets for income production in the buyer’s business are generally tax deductible.

Jurisdiction and tax agreements: In Singapore, tax residency of a company is determined as a matter of fact by the place in which the business is controlled and managed (eg, where the board of directors sit, where strategic decisions are made). As such, a target incorporated in Singapore is not necessarily a tax resident of Singapore. This would expose the buyer to tax obligations in foreign jurisdictions and affect the viability of the target as an investment.

Additionally, Singapore is a party to double taxation agreements with over 100 jurisdictions. This is particularly useful for cross-border private M&A transactions involving companies incorporated in Singapore, as it allows parties – particularly those based internationally – to avail of various tax exemptions in Singapore, including on incoming dividends and foreign income.

Capital gains: There is generally no tax on capital gains from the sale of property, shares and financial instruments in Singapore, which is relevant to both a sale of shares and a sale of assets. Dividends distributed by a company incorporated in Singapore are not subject to any withholding tax. Furthermore, unutilised capital allowances and trade losses may be carried forward for extended periods (sometimes indefinitely), subject to certain conditions.

New laws: With effect from 1 January 2024, a new section in the Income Tax Act 1947 of Singapore subjects gains from a sale or disposal of any movable or immovable property situated outside Singapore that are received in Singapore by a relevant entity which does not have economic substance in Singapore to taxation under specific situations.

2024 was marked by significant geopolitical challenges, macroeconomic and regulatory uncertainty, inflation and volatile capital markets. However, despite global headwinds, the M&A landscape in Singapore has seen a rebound compared to 2023, with deal volumes in the first three quarters of 2024 involving Singapore companies increasing by 29% compared to the same period in 2023, confirming Singapore’s resilience and status as a M&A hub in Southeast Asia.

Significant deals in Singapore in 2024 included the following:

• the S$1.6 billion purchase by Lendlease and Warburg Pincus of industrial assets from entitles associated with Blackstone and Mr Lim Chap Huat, executive chairman of Soilbuild Group Holdings Ltd – one of the largest transactions of a private portfolio of industrial assets in Singapore; and
• the S$1.76 billion investment by a Singtel-KKR consortium in data centre provider ST Telemedia Global Data Centres, in a deal said to be Southeast Asia’s largest digital infrastructure investment in 2024.

In a significant regulatory move, as a result of German insurer Allianz’s offer to take a controlling stake in Singapore’s Income Insurance and concerns over Income’s ability to continue its social mission, Singapore’s Parliament passed the Insurance (Amendment) Bill on 16 October 2024, giving the Monetary Authority of Singapore (MAS) powers to block deals involving insurers run or substantially owned by cooperatives. This introduces complexity and potentially lengthens deal timelines in respect of future deals involving insurers that are either cooperatives or linked to a cooperative, which will need to fulfil both:

• the prudential requirements imposed by the MAS; and
• social mission considerations of the Ministry of Culture, Communication and Youth.

Ahead of Budget 2025, facilitating M&A was among the recommendations proposed by PwC and the Singapore Business Federation to support local businesses. Their proposals include:

• aligning legislation for legal and tax outcomes to facilitate cross-border M&A; and
• establishing targeted business and financial advisory centres within trade associations and chambers to:
• • educate local enterprises on M&A strategies and opportunities; and
  • allow Singapore businesses to pivot for growth and scale through M&A and address their financing needs holistically.

Overall, despite the prevailing global economic challenges, Singapore’s standing and proved resilience as a prime financial hub for multinational companies, fund managers and family offices, coupled with robust policy support from the Singapore government, position it favourably for a resurgence in M&A activity.

Facilitating the smooth closing of an M&A deal necessitates:

• early planning;
• thorough due diligence; and
• smart negotiation.

Material aspects of ensuring a smooth closing include detailed agreements clearly addressing:

• the obligations of each party;
• regulatory compliance;
• financial consideration management; and
• post-closing integration planning.

Parties can also consider warranty and indemnity insurance, which is increasingly being used in Singapore. Additionally, engaging the relevant financial, commercial, legal and tax advisers is crucial for:

• identifying and addressing potential challenges; and
• ensuring a successful conclusion to the transaction.