EXERCISE 1

1.1 The most optimal structure to acquire the manufacturing facilities of Orchid considering
various variables would be Asset Sale. In Asset purchase, acquirer is only interested in
acquiring the assets of the Target Company which can be utilised by acquirer in his
business. The acquirer cherry picks the assets which he requires in his business. While
acquiring the assets, the liabilities associated only with respect to the selected assets gets
transferred to the acquirer. Parties enter into Asset Purchase Agreement in order to
transfer the selected assets.
Especially, keeping in mind how Serum Institute wants to acquire Orchid in the quickest
time possible, Assets sale only requires in Asset purchase, acquirer is only interested in
acquiring the assets of the Target Company which can be utilised by acquirer in his
business. The acquirer cherry picks the assets which he requires in his business. While
acquiring the assets, the liabilities associated only with respect to the selected assets gets
transferred to the acquirer. Parties enter into Asset Purchase Agreement in order to
transfer the selected assets
1.2 In Assets Sale, except the case where the acquirer is interested in Target Company’s
employees along with other assets, there shall not be any transfer of employees to the
acquirer. Employees of the Target Company will continue to work under the same.
Referring to “Sunil Kr.ghosh & Ors. V. K.ram Chandran & Ors.” And under provisions
under Labour law, the Acquisition of Orchids by the Serum Institute can’t force workmen
to work under a new management against their will. If the workmen do not want under
the new management, the can take by voluntary retirement and entitled to the benefits of
the same.

1.3

EXERCISE 2

2.1 An acquihire transaction is the most suitable structure to achieve the benefits underlined
above with the least transaction cost. Acqui-hire transactions can be defined as the kind of
transactions where a company is acquired for its people and talent and not for its products,
services or earning streams. The acquirer by looking at the performance of the company has
reason to believe that the team can work together and solve a unique market problem which is
in synch with his vision of the company. The acqui-hire arrangement is a mixture of
Intellectual Property assignments, transfer of various web assets and an employment
agreement:

 Asset purchase of typically tech related assets of the startup: websites, domains, etc.
(Optional). Sometimes, the acquihiring entity may not be interested in any of these.
 Intellectual property assignment in the work produced by the team (this may not
always be part of the deal though). This is important if the team will continue to work
on same technology or similar product and will use what they created in the startup as
a base or use a part of that technology.
  A smooth transition of the team from one entity to another is the main focus. They
may be paid a joining bonus or given small stakes or ESOPs as a part of the deal.
Usually, their compensation is the main focus of the negotiations.
 Consideration for all the work and the assets mentioned above, it can be a lump sum
amount that can be paid to the promoters. Usually, investors and founders don’t get
much out of such a transaction though. Founders are usually glad that their team is
going to be gainfully employed and not face uncertainty and that they may get to
work together on interesting projects. Often that is the biggest takeaway for the
startup founders.

This Structure will be the most beneficial for Deehaat. If Deehaat’s a private limited
company, it is not essential for its shares to be acquired by the acquirer.

2.2 Considerations we should keep in mind before proceeding with the transactions are
mentioned below-

 Due Diligence- A basic due-diligence of the financials and legal documents of the
young company should be done just to be sure about their debt, corporate structure
and compliance situation. Checking the existing employment agreements and
constitutional documents of the target company is mandatory. However, due
diligence will be very limited as usually the target company is not acquired and just
the team is hired.
 Talent pool Assessment - Assessing the talent pool should be one of the first things
that should be done by the acquirer. The acquirer should first try to understand as to
what exactly they are acquiring. Is the team exceptional enough or is it just one or two
employees in the team who lift it up to exceptional levels.
 Merger of two entities- The point is to try and understand how both the acquirer and
the target company works. And then try to acquire the target company. Acquihires can
be highly destructive, the two companies may have different goals and visions. The
employees may not be able to connect when they get acquired. The employees may
not be able to fit into the corporate culture they have always wanted to escape and
hence, work in a new company.
 Costings of the transaction- The biggest advantage in this transaction is that these
employees do not require any training and are already well versed with the latest
technology that they are going to work on. Think of the humongous cost benefits in
terms of training that the acquirer saves upon. They are ready to add value to the
company from day one. Apart from adding people to the talent pool, the acquirer gets
his hands on the special market intelligence and the IP created by the young startup
which can be a game-changer and reduce time taken to develop a product or hit the
market or iterate.