Hi everybody. Welcome to this webinar. I'll be starting in a minute or so just to give, a chance for a couple more people to, to join us. But otherwise we'll get ready to go with this Completion Mechanisms webinar in a, in a few seconds time, right? If you do want to access the Excel file that we're gonna be using for this particular session, then within the Zoom menu bar, there should be a resources section. It might be hidden away in the more three dotted buttons, but you should be able to find that within the menu bar there somewhere. So the resources gives you access to a Excel download, and within that Excel download, there's an empty version that we'll be starting from, and then a full version that will have the solutions not only to the workouts, the exercises that we do have a look at through the course of this session, but also some additional workouts there for you as well. So there's a, a good number of workouts there in that Excel file. We won't be going through all of them in the next hour. We will look at some of them just to try to give us some context. If you have any questions as we go through, please feel free to put your message into the chat function or the Q&A section. I know sometimes your organization might put some blocks on actually commenting in chat sections, but hopefully you can put them into the q&a section instead. Okay, so any questions. Welcome at any point as we go through the course of this session. So what we're gonna be looking at is completion mechanisms, and what we're thinking about here is the process that we need to go through from an offer, a takeover offer for a company being accepted all the way through to that completion point where we actually have the buyer pay of money and take legal ownership of that target. So that's really the process we're looking to go through. Those two things don't happen at the same time. There might be weeks, maybe even months of time lag between those two things happening. So we just need to make sure how we get from the offer being made and being accepted by the target company shareholders all the way through to that completion. So that's our process as we said already. Any questions, please do shout as we go along, more than welcome to hear from. So, what we're gonna be looking at as we go through the course of this content is to have a look at

the two main methods that we have for completing that process. First one we're gonna look at is the completion accounts approach, and then the second method that we've got is the locked box approach. There are two main methods that we're gonna be thinking about before we get to That though, we're gonna think about why we need to do this, but also who it might apply to as well. And the, the key point to note in terms of the who it might apply to area is that these two approaches and the choice that the buyer, the seller have in terms of negotiating which approach to use is only gonna be applicable within acquisitions of private companies. If you're buying a company that is publicly traded, there's a lot of regulation,

specific to the jurisdiction where that companies based that will guide how this completion mechanism takes place. But for acquisitions of private companies where there's no external regulator, external exchange involved in the process, it's for the two parties, the buyer and the seller to determine which approach they're gonna go through.

Okay? So that's where we're gonna be going for the next hour or so.

So why is there an issue? That's our first starting point. Why we've gotta worry about, the difference between the date when the offer's being made and accepted and the actual date when the ownership check changes hands and money is paid to that company. Well, one of the first things to think about is that often when we're valuing a company, the valuation is done on an enterprise value basis. That tends to be what we are valuing. So maybe we're using some sort of enterprise value to EBITDA multiply to come up with our value for the company based on some sort of industry average multiple. The problem is that's, although we might have in mind an idea about how much cash there might be and how much debt there might be, those numbers aren't necessarily gonna be known to us and will also change as we go from the offer being accepted all the way through to the completion date, which might, if we go from the enterprise value over to the equity value, it's determines what you're gonna be paying for the target company shareholders, those intervening blocks, cash and debt, but also valuation of our non port assets. Maybe they might change, we don't know exactly what those numbers are until we get to the date when that transfer is going to. Sorry. Although we can value the business based on an enterprise value marketing and although we can get some estimates, maybe some historical data points in terms of how much cash and how much debt the business has, we don't know those for sure until we get to the completion date itself. So that gives us a bit of a problem that we've gotta deal with.

One of the point before we get into the solution that issue is just to say that there's a lot of legal process involved here. There's gonna be heavy involvement from lawyers to make sure that all of the issues, all of the complexities, all of the results of negotiation and the outcomes of due diligence is all documented correctly and appropriately. So nothing goes wrong when we get to the completion. There's a lot of legal advice, uh, lawyers involved in the process. Lawyers don't like the term enterprise value. I'm gonna describe what it is very closely. Lawyers will typically use instead this terminology of the cash free, debt free value. Because if you remove the cash in the debt and ignore the non-core asset assets here, then enterprise value would be the same as equity value. So essentially we're saying what would the equity value be? What would the value to the shareholders be if there was no debt and there was no cash in this company? So the enterprise value, essentially the value of our operations. Okay, so why do we care? Why is this process important for us? Well, firstly, we wanna make sure that once we've made our offer and it's been accepted by the target company shareholders, that once we get through to the completion date, everyone knows what they're getting. The buyer knows what they're getting in terms of the value of the company. The seller knows what they're getting in terms of the purchase price. And as a result of that, we hopefully will minimize uncertainty, minimize risk for both parties and the completion date set. How do we do that? Or we make sure that we are documenting very closely everything that is maybe up for debates up the negotiation within a document. And that document is referred to as the SQA sale and purchase agreement. This is also something I can refer to as a share purchase agreement and does pretty same job. But that's the, the point here that we want document very, very clearly and closely exactly how item should be treated. For example, how should we be valuing those non-core assets in the enterprise value equity bridge that we saw on the previous slide? How do we actually come up with a value for those non-core assets? We wanna make sure that that is documented so everyone knows what is going on by the time we get to that conclusion. Next.

So how do we go about doing, how do we fix this problem of us as an acquirer, maybe making a takeover bid that is then accepted by the target company shareholders, but then some point later we're actually gonna to pay some money to buy a company and maybe the company's changed a little bit in terms of some of its component parts that, okay, so two ways of doing it. The first way that we could do it is using the completion accounts approach. And this is how m and a transactions were settled for a very happen, settled for a very long time, sort of the traditional loan approach. So how do we get those numbers? How do we get numbers for debt? How do we get numbers for cash and everything else that is maybe a bit more subjective? Well the first one we could do it is to start off by using some historical populist data things. We know those for sure. We could look at a company's most recent financial statements, see how much debt they've got, see how much cash they've got. Also, other things that are typically up for negotiation are how much CapEx uh, there should be in the company. For example, if you're looking to sell a company, you might look to reduce the amount of money that you're spending on CapEx to maybe make it look a bit less capital intensive and therefore not as expensive to run. You could also maybe run down your operating working capital again to make sure make it look like there's not as much need to hold operating working capital. So that might have been something that's done in the lead up to a disposal. But as an acquirer, I wanna make sure that the company's got the requisite and necessary level of CapEx capital stock, but also of our operating work and capital as well. So we might use some historical data points, historical financial accounts as a starting point for those calculations and maybe that's what we used in our calculation for the offer that we made as an acquirer. But what we're then gonna do once the offer has been made and accepted by the target company shareholders, what we're then gonna wanna do is to first of all enter into a document called a letter of intent or heads of terms. Now this doesn't really require, doesn't really include lots of detail. It might include a very high level valuation metric. It might also though just provide us with a framework for the ongoing discussions and negotiations that are gonna, that are gonna come next. So we might have out of the initial point here, we might have an equity value, but that isn't necessarily the final price we're gonna pay by the shares because what happens after that initial heads of terms is agreed is that as the acquirer will go through the due diligence process to try to understand how much CapEx is needed by our company, how much operating working capital would we expect to see in the company on average and try and kind of go into the company and see who its key contracts and all those key ideas to really see if the underlying assumptions that we had in coming up with our valuation metric, that valuation multiple to see if they've really justified and see if we really wanna go ahead with the acquisition and those teams. So we'll go through that negotiation process. Everything is up to date. How do we value non-core assets? How much operating working capital should there be? All of that stuff. We reach a conclusion and document it within the SPA sales purchase agreement. We might well also have here some estimated financial statements. And the idea here within this due diligence process would be to come up with an estimate of what we think the financial statements of the company will be on the completion date, on the date when the acquire phase money and takes ownership of the money. So there only estimated at this point. The reason why we need to estimate the amount of cash and the amount of debt that the company's likely to have on the completion date is so that we can come up with the equity purchase price, how much you've got to pay on the transaction date to take ownership of those shares. The problem we've still got own, although we've come up with some estimated financial statements, estimated numbers in terms how much debt cash and how much money been spent on CapEx and how much operating working capital we think the company will have on the completion. We dunno that for sure, but we do use that within the SSPA to come up with an acquisition price. The equity, the price pay point, the problem is that's not known and things like financial statements, much debt, the company's got cash, much operating working capital they've got isn't something that can be calculated just at the touching button we're gonna need to produce in financial statements. So what we then produce is a set of and see the name comes from completion accounts. The completion accounts do represent what the company's balance sheeting position looks like on the day of the transaction and the completion date. This is gonna take some time to pull together. So it might take a couple weeks, maybe couple a month I guess to actually produce those financial things to come up with a true reflection of what the company's assets and liabilities were on the completion date. Now then again, we can go over our and value business based on the enterprise value go over the bridge to get to what the actual true equity value was on the acquisition dates. That's what we should have paid as the acquirer. Now that might be different from the estimated number that was actually paid on the transaction dates, but all we do to kind of, correct for that is we have a catch up or referred to as a truer to get us back to the actual position that is a cash payment. It could be made by the buyer or by the seller to reset us back, adjust if you like, and the price that was paid on the acquisition date. Don't forget that price is based on the estimated accounts. The truck gets us to the actual amount that should have been paid and the reason we didn't have that number on the transaction date is because the completion accounts weren't available. Okay? It's probably worth putting some numbers around this just to demonstrate what this means and how this might actually reflect itself in reality. So let's go and grab some numbers here to see what we've got going on. So if you go to your Excel file, the empty version is the one that we're gonna put the calculations into what we've got here in this empty version in out one workout ones, we're gonna start, we've got a simple set of calculations just to demonstrate why we need to worry about these sort of issues and just to see what might, okay? So work out one sets. We've got our company A acquiring company B, uh, A is bidding 1000 for all of their shares for B and the shareholders have accepted. So there's agreement during the buyer and the seller here.

What we have and used in terms of coming up with that price, we're willing to pay the equity value, we're willing to pay to the shareholders of the, we've essentially used historic financial data and we've assumed from that that the company's got debt of 200 cash of 100 and working capital. Okay? So scenario A, what we're trying to figure out is how much should we pay to buy this company? Now we used historical financial statements and we said, well maybe they got debt they've had in the past Debt 200 and a cash of hundred and working capital, what's the most recent data that we've got? But if we actually get a closing date, and it turns out that they've got slightly different numbers in terms of what their financial spending look like. They've got the same cash and the same working capital operating working capital that we assume they had, but they've actually got more debt. But we've got a potential problem. Let's just go through some numbers that demonstrate what this is showing for us. So if we think about what this 1000 implies about the enterprise value that got us to that 1000, well the original equity value we said was 1000. That's what we were willing to pay by the company.

They've got debts, okay? If we're going from the equity side over to determine the implied enterprise value, we're gonna need to add on that debt that we think they've got of 200 from the most recent financial segments. We're then gonna need to take off their cash, get over that bridge. No sorry, we put 100 of net debt. Effectively we can then solve for the enterprise value of 1,900. When we initially made an offer of 1000 for the shares company B, it's because we thought they had debt of 200 and we thought they had cash of a hundred. Implying we thought the enterprise value should be 1001.

Now when we actually get to the completion date, if that is not the case, then maybe we shouldn't be offering uh, 1000 for the shares of the company. What we can see here is that by completion they've got more debt but they don't have a corresponding increased amount of cash. And what might have happened here is that company B here has taken on some debt financing and use that to pay themselves a dividend, which means that the cash that we've received from the debt being taken on isn't in the company still and there's been a whole bunch of money paid out to the existing shareholders, but there's more debt in the business. Well this must mean that it's less valuable from the equity investors perspective. So we are assuming that the enterprise value hasn't changed in the interim, it's still gonna be valued under ever enterprise value multiple. We initially came up with as appropriate, but if the closing debt number that now needs to be deducted was 300 and the cash number was 100 still added on that would leave us with what the equity value really should have been of 900. Now if the enterprise value hasn't changed, it's still that 1001 hundreds still that 1100. If there's more debt in the business, more next debt, it means there's less value left over for your shareholders. So although we might have initially said, well we think the companies worth 1,100 in terms of an enterprise value and from that derived an equity value that we made as an an offer of 1000, if it comes through to completion dates and there's more debt in the business, but there's less money left over for us as a shareholder. So we'd be willing to pay less by that. So that's willing to worry about these things, okay? There's gonna be an implied debt and cash number in our equity bridge to get from what we value the enterprise value over to what we're actually buying for shares of the target. Okay, let's go down and have a look at workout five just to put the context of the completion accounts into a bit more detail.

So workout five is gonna work us through the three calculations we might have for E or inequity value if we're using the completion accounts. So under the completion accounts method, okay, out five says calculate equity value at the signing date where we actually have the accepted and we've signed up that letter of intent on the closing date as the cash paid by the acquirer on the completion date and if there is any subsequent trial payment necessary. So we're using the completion account method. What we're told here to begin with is that we value the business at six times EBITDA. Now, when we initially went for our calculation, we assume that they'd have a hundred of operating working capital and we also assume that they'll have 50 of CapEx to be spent over maybe the last 12 months. They also, we assumed we'd have 50 of cash and a hundred.

Now what that enables us to calculate is the equity offer price that we might make that target company share. So we'd say, okay, well the value of the business is six times your most recently with are. So enterprise value of your business is 300.

To get from enterprise value to equity value, we're gonna take off the debts and we're gonna add on the cash that we think you've got. Now where are those numbers coming from? Probably the most recent set of published financial statements that will get us to an offer price, an initial offer price of 250. So when we go along to the target company, we say, we would like to buy your shares from you for two 50 million pounds. Million dollars, I got my fee. Would say, okay, well we've got to that two 50 equity number because we valued a new at six times EBITDA. So we go through the due diligence process. Okay, next step here. So step one is using historical financial segments that were already in place before the takeover bid.

Next step takeover bid been launched, the offer has been accepted, that two 50 offer for the shares has been accepted and we go through the due diligence process. And in that due diligence process, what we've discovered is that well they do have the a hundred debt that we thought they had. They do the 50 of cash that we thought they had, but they've only got 80 of operating working capital and they've only spent 40 of CapEx over the last 12 months.

What it means is they've got less operating working capital than we thought a company should have, which means that we're gonna have to invest money to acquire more maybe inventory following the acquisition. What's a cash outflow for need by the company that we thought initially valued back on the basis of of it having the right number for operating working capital of a hundred. But it's got less. Same thing for CapEx. We were valuing this at six times even though on the basis they've got the right level of CapEx and if they've underinvested in CapEx recently, I'm gonna have to spend more money on CapEx after I've bought the company. So I'll be willing to spend less money to buy the company in the first place. To some degree you can think about this as buying a car and agreeing that you're gonna buy it with the tank of petrol tank gas bulk and you come along to buy it and actually it's not as good as you thought it was gonna be. Well, I'm gonna be willing to pay less money to buy the car, but I've then gotta top up that gas tank once I've actually purchased it. It's the same idea. So what we're now gonna do is recalculate what the equity value will be based on these estimated numbers. These are what we think the company's financial statements will look like on the completion date. They're estimated numbers not guaranteed for sure, but this is gonna go into the SPA sale and focus agreements and will determine, and the document in the SBA how much cash needs to paid by the acquirer by the target company shares on the completion debt. So we are still gonna value the company at 600, so still gonna be valued at 300 million. We're then gonna take what we estimate the debts to be of 100 off due diligence. Take that off. We're then gonna take what we think the cash is gonna be and add that on as we've done before. But now what we're gonna say is, well we've only got 80, we only think there's gonna be 80 of operating working capital and because I'm gonna up 20 extra after the acquisition, I'm not gonna pay that to the to the vendor to a seller in my purchase price. Okay? So what I'm gonna do is say, well there's 80, we think of working capital operating, working capital, it's gonna be in the company on the completion dates and we deduct from that what we think there should be 100 say, well I'm gonna pay 20 less by the company from the current shareholders is I'm gonna have to invest that 20 in. Let so inventory once I've acquired the company. Same thing for CapEx.

We're gonna take what CapEx spend there has been over the last 12 months. We think there will be completion date and we subtract from that what we expected. There should have been at 50 to say again, well looks like there's gonna be a 10 under investments into our CapEx before the completion date. I'm gonna not pay that current shareholders from company should have invested that money into their CapEx before acquisition if they haven't done it. I'm gonna to spend that after the acquisition. I'm gonna tell you less about the company, which gives us an equity purchase price that will go into the SPA that will be paid by the acquirer on the completion date of 220. It's 30 less it the 250 that we initially offered because well the current company should have invested 30 million extra into operating working capital and CapEx.

So I'm gonna vote 30 left company. So I'm gonna spend gonna have to spend 30 on popping up operating, working capital and CapEx after the, it's certainly the second step in the process. It's based on what I think the estimate of the balance sheet will look like on the completion date. And this is the money that would be paid on a completion date and I would then take as the acquirer ownership of the company's shares having paid 220.

But on the completion date we don't know what the debt and the cash and operating working capital and CapEx numbers are. So what we're gonna have to do is some point later go through the process of completing a set of financial statements as at the completion date. Those are our completion accounts and we get some additional information further down that says, well in the actual completion of those completion accounts, that's specific. We discovered that on the completion date they actually had a hundred, had 101 of debt but had a 52 of cash and actually had operating working capital of 19 and had spent 45 million on CapEx over 12 months to completion debt. So what we can do here is calculate what the right number should have been for the equity purchase price on the completion date using the information for the company has at the completion date itself. We only get this after the completion date because it takes time to pull the financial damage to account and then we can compare that to what was paid to see if there's any true payment. So again, equity enterprise value rather hasn't changed at all. At least that's our assumption here. We then need to say, well how much debt did the company actually have on a completion date and did deduct that? That's the one one. And how much cash do they actually have on a completion date? That's 52. Then how much under the targets operating working capital were they? Well they actually had 90. We need to compare this to the initial target number of 100 to say that they were under still for only by 10 or 20 and CapEx. Again, we've gotta compare this to the initial target of 50, not the estimate of 40 on the completion plan.

So what we're trying to calculate here is what should have been paid on the completion date. We'll then come back to what actually was paid to get our true up number. Okay? So again, all we've gotta do is add that all up to get the 236. This is what should have been paid on the completion date. We didn't have all this information on the completion date, which is why we had to use the estimated numbers to get to 220. But now after the completion date we can actually go through and calculate that we should have paid 236.

This will mean that the buyer is gonna have to pay an extra, well 236 they should have paid, they had actually only paid 220 on the completion date. So the buyer's gotta pay an extra 16 once the completion accounts are final. And why they gotta do this, well firstly the equity value just going over the bridge is one higher because they've got more cash and yet they've got more debt but they've got one higher net debt that provides more value to their shareholders. They've gotta pay more money to buy the company. But also we were 15 under in terms of the initial valuation of 250.

So from the initial offer price of 250 companies worth one more max, they've got one next debt for initial assume, but there's been a five under investment in CapEx and a 10 under investment operating work and capital. So we're gonna pay 14 less than a 250. Taken everything together. We have paid 220 on the completion date as the buyer. We've gotta pay extra 16 once the completion accounts are 5.

Okay? So that's our chart process. Okay, we've got a slide here that actually through the process, but the slides or the numbers at least that we've gone through show, so that's, so there's, there's nothing extra to pick up from that. There are some issues here just to be a little bit careful. Those issues are that firstly our cash flows are uncertain in that as the acquirer, the SPA says I've gotta pay 220, but then a couple weeks a month later I've then gotta pay another 16. Well like maybe because often in acquisition I'm going out and borrowing a lot of money to facilitate the acquisition and when I go to the banking providers and say I need to borrow money, the SBA says that we've gotta pay 220 and you borrow on that basis, you go back few short weeks later and say, oh, it's more money for a truck. Isn't necessarily the easiest conversation you have in a fiddly. So you might pay extra the other way around though you might have paid too much, you might get a truck payment coming back to you and then you wanna be paying debt back early. So let's pay less by the company. Again, that feels a bit equal as well for us. Other issues to note the buyer is gonna be responsible for the completion accounts. Because once you've bought the company, you're then responsible for running that business as well as the accounting function in it, which will allow you to calculate the completion accounts and that might be a concern for the seller. So what you might wanna do is document within the SPA what documentation needs to be provided to the seller to give them comfort that the completion accounts are true and there's been no sort of chicanery by the acquire of the company once they've brought those put the company in in the process of their completion. Things are things that are a bit more messy for us here in are that while some acquirers have fixed funding to deal with now what that really refers to are private equity fund. Private equity funds don't sit on all of the cash that is waiting to be invested in companies up until the point where it's invested. Investors in the private equity funds commit capital to the fund but they don't pay it in until that fund has found acquisition targets.

Now as a private equity fund manager, I want to go back to my investors like limited partners and say, well can you pay me money today so I can go out and buy one of these target companies potentially investment company for our footprint? That's great, we're gonna go out and buy them. What I don't want do though is go back to those limited partners a few short weeks later and say, oh you gotta pay me a bit more money because there's a truck. It's a bit more fiddly. The limited partners might not be willing to do that.

And finally we've also gotta prepare the additional set of accounts and those additional set of accounts is gonna come with some costs. May be they might need to be audited if the vendor is not happy with trusting us just to produce a set of accounts that really reflect what the status of the company, sorry the company was on the completion date. So there's some more costs that are gonna be incurred there as well potentially through the production and negative auditing of those completions.

Okay, so this is the overall process, but as you can see there's a few complexities here and a few challenges for us. The alternative method that we've got, the locked box approach tries to deal with those problems.

So the way the locked box approach works and it's not all proof, it's not the only way that transactions work nowadays. It tries to solve some of those problems but does have some of its own issues to deal with as well.

The locked box tends to be quicker and the reason why the lockbox approach is quicker is that when we agree to complete in a locked box approach that we're effectively doing is saying we're buying the company at some point in the past on a date where we already have a set of financial statements. So if the company's got a 31st to December year end, then we're looking to buy the company in you of April. And we can say, well let's use the accounts from the 1st of December and assume that as the acquirer, I'm buying it as at that date.

Transaction clearly doesn't happen at that date, but we use the financial information from that date. That's the date of economic sale is not the actual date of completion. We'll then go through the same process. We'll still have that due diligence process to go through and look at the company and see whether there's an adequate level of operating working capital and CapEx spent as at that most recent balance sheet date.

But that most recent balance sheet date will determine for us the price that is then paid on the completion.

We don't have any worries about what the balance sheet of the target company looks like on the completion date because the company isn't being valued as at the completion date. It's being valued as a date about most recent historical financial spending.

So this will sounds not straightforward. We use a set of accounts that already exist.

The two problems we've got are, so we're value in the company at some point historically. What if things happen between then and the completion date that we're not comfortable with as the buyer? Well you're gonna make sure is that everything is documented very closely within the SPA to say what is allowed to happen, what can be taken outta the company what needs to happen in terms of maybe investing in what can be taken outta the company I guess up that point. Often this refers to maybe dividends that have been announced that haven't yet been paid. Maybe those will still be allowed to be paid, but any dividend paid out, we'll reduce the equity they're referred to as leakages. And the other issue is that the vendor is still the legal owner of the company and still has their money tied up from that historical date. While we have those recent financial statements up until the completion date, it would tend to do is have some sort of interest rate, some sort of compensation, but pretty much the delayed receipt of the money because you've gotta wait to get your money, don't get the money as at the 31st of December. That's the date that we've effectively sold the company. We don't get our money then you're only gonna get some point later. There's effectively an interest charge for opportunity cost up until the completion.

Probably worth putting some numbers around this just to crystallize this for us. So most numbers are all in workout seven. So if we jump down to a workout seven within our Excel file, that should give us the insightment here. So work out seven whereas to calculate the purchase price money that is paid by the buyer using the information below, assuming that we've got a lot lost completion methods and so on the 1st of February, year two the target company produces some financial statements for the year end per first December year one. That is the date that we're gonna assume the transaction takes place. You got all our information on the 15th of February. So this is after the statements have been produced. Acquire contact target makes by and they agreed valuation terms based on seven times either. So this is the price that's gonna be paid. We're valuing the business based on an enterprise value multiple. But what you've gotta pay is the equity value in the room and our completion date. Our closing date is set for the first thing.

So how do we work through all these numbers? Well, we go through the due diligence process. We're gonna be buying the company as at the 31st of December, but maybe we've looked at other companies in the sector and we would expect this company to have had on the 31st of December operating working capital of 60, but they actually only have 50. So what we're saying here is that we would value the business at seven times EBITDA if they have the right level of operating working capital, but they're 10 under which is gonna expect the value I'm willing to pay for. Also as at the 31st of December, maybe for the last year we would've expected 35 of CapEx, but actually it's companies only had 30. So they've under invested in CapEx as that the 31st of December they were transaction based or the they transactions economically technically. So again, I'm have to spend more money after the acquisition as a result on that to spend that money on purchase price. And finally the company's also enact dividend for 15th of March. Now as a company pays a dividend that puts value into the hands of the shareholders and reduces the value of the business, well totally fine. We might agree that this dividend can still be paid, but 30 would then be in the hands of the total company shareholders if no longer in the business and I would not be willing to pay that in the purchase price. So again, that would be an allowable leakage reducing final point is that we've agreed that a 5% opportunity cost for the money that isn't paid on a 31st December, it's not paid until the 1st of May is acceptable to both parties. It's an annual interest rate. So we're gonna need to deannualize banks.

So how much money do we need to pay? We can figure this out upfront. It will go into the SPA. There will be no further negotiation beyond beyond that so long as all of the terms of the SPA are billed. So the valuation will have as at the 31st of December would be seven times seven times ebitda. So let's say EBITDA and times it by seven. That will give us the enterprise value as at the 31st of December. On the 31st of December we can see from their financial statements that they have cash of 10, sorry, 20. So we're gonna add that on. We also can see from the financial statements as at the 31st of December that they had debt 200. So the transactions taking place as at the 31st of December using all the data points from those published financial.

Also as at the 31st of December they had 50 of operating working capital, they should have had 60. So that reduces how much I'll be willing to pay for the company and also they should have spent 35 on CapEx. So they've only spent 30 over the last year. So again, a reduction in December, how much I'll be willing to pay.

We're effectively saying that the equity value value would've been five 20, but there's an underinvestment into CapEx and operating working capital. So I reduce how be willing to pay the for shares of that. Finally we've got that permitted leakage. The dividends would've been announced of 30. Again, that reduces how much property will pay, which will give me my purchase price. The amount of money I've gotta pay on the 1st of May to acquire this company effectively from the 31st of December or 407.

So this is what we've come up with as a value, what the equity share value would've been on the 31st of December. Now I'm not paying that money on the 31st of December. I'm only waiting until the 1st of May to pay that. So there's this interest AC across this opportunity cost of 5%. So we need to take 5%, we're gonna de annualize it four months January, February, March, April. So four months there of interest and I'm gonna multiply that by the money that needs to be paid and then multiply by the 475 to say that there's effectively an interest charge because we don't pay the 475 in the 31st of December. We're not paying until the 1st of May. Effectively interest charge of 7.9 million, meaning that on the 1st of May we'll pay 482. That will be the full and final purchase price paid on the 1st of May as the ownership transfers ownership will transfer on the 1st of May. But effectively we value the company as at the 31st citizen.

But just to summarize for us we've got everything line up on the screen already for us it's really lays out the benefits for us. We already using financial things that exist. It's less costly because reason those financial already exist and there's one cash payment that's gonna be money. Here's the calculation you've seen. So when are we gonna be able to use the lockbox approach? Well, a couple of criteria really. Are there any recent financial statements? All this is gonna be really important there as well. The lockbox approach typically used when there's a quick turnaround needed. I we're using this financial statements that exist in the past and where we also have some confidence that they're true if they're, that's gonna help us out. Okay? You can only really use it if you've got a separate legal entity that has its own financial statements. And the final point we've gotta be really careful with is those leakages. What can be taken out of the type of company between the 31st of December. And in our example, first of making, we've got to firstly be very explicit in terms of documenting everything that can and cannot be taken out of the company. In the interim, the shareholders. Shareholders and also have some confidence that the vendors are gonna stick to that and that there is sufficient legal restitution mechanisms if something doesn't go right, those the SPA here is really important. There should be one payment and that should be everything. Okay? So just to compare the two lockbox is simple. Does rely on reliable numbers of recent financial statements lot quicker as well. Does have though the potential risks around those leakages completion accounts a lot more complex, get more time, um, takes a lot more time and more expensive because we're effectively having three separate accounts. One historical for initial estimate with the initial bid, second to the estimates going into the SPA and third completion accounts. So a lot more work going on there, but, but there's less, I guess you could argue uncertainty and worry and concern about leakages because we actually take a set financial things as active date when a transaction, however it might be a catch up payment, that truck payment that might be made or could be received by either.

That's pretty much it. That's pretty much it in terms of everything I've got for you. Hopefully this last 45 minutes has pulled together some of the key issues and concerns that we might have in terms of picking up which approach to goco. These approaches do need to be agreed between the buyer and the seller in private company transactions only. As we said at the very beginning, these choices don't exist for acquisitions of public companies because they're typically very strict rules set up by exchanges and regulators in terms of the confusion mechanism below public companies. But there is a choice here. Something needs to be agreed if you are looking at buying.

Thanks very much. If you've got any questions, I'm more than happy to take them. Otherwise have you have a great rest of your day and a great weekend. Thanks.