structure of deal

2. Mode of operation

The trust company signs a contract with the acquirer to transfer the usufruct of specific assets, and the acquirer transfers the usufruct of specific assets to the trust company, and the trust company initiates a trust plan to raise funds and pay them to the acquirer. In order to ensure the safe recovery of trust funds, trust companies usually require the acquirer to mortgage/pledge the specific assets to the trust company at the same time as transferring the income right of the specific assets, as a guarantee for the acquirer to fulfill the repurchase obligation. If the purchaser fulfills the repurchase obligation at that time, the trust company will release the mortgage/pledge of the specific asset; If the purchaser fails to fulfill the repurchase obligation at that time, the trust company will dispose of the specific assets.

In the early M&A period, M&A trust with specific asset income rights mainly participated in the financing process, and its essence was to pledge specific assets to raise funds needed for mergers and acquisitions. Usually, the acquirer adopted the way of stock income rights transfer and repurchase for the stocks (shares) to be acquired. The trust company may stipulate in the contract that on the day when the purchaser successfully handles the equity transfer, the trust company shall also handle the equity pledge procedures; In addition, the equity transfer agreement signed between the acquired party and the acquirer can stipulate that "all the equity transfer price paid by the acquirer shall be supervised by a third-party bank account agreed by both parties and established in the name of the acquired party", which ensures that the acquired party will not misappropriate the acquisition money without authorization before handling the equity transfer procedures, thus ensuring the security of trust funds before the equity pledge.

Generally, M&A Trust, which has the right to stock returns, adopts risk control measures such as signing repurchase agreement, stock pledge guarantee, third-party joint guarantee guarantee, setting additional margin and supplementing the warning line of pledged stocks. In M&A's trust business, the transfer and repurchase of stock income rights are common business models of trust companies.