An Iraqi distributor’s accounts may show substantial inventory and customer receivables while omitting supplier rebates negotiated outside the ordinary accounting process. A Turkish purchaser should establish the legal quality of those assets before using them to support the acquisition price. Book value alone does not establish ownership, collectability or an enforceable entitlement.
The transaction structure matters. A share purchase leaves the business and its liabilities within the existing company. An asset purchase requires analysis of how the selected property and contractual rights will transfer. Iraqi company, contract and commercial agency rules may affect both routes.
Verify what inventory the target actually owns
Stock held in the warehouse may include consigned goods, customer-owned products or items subject to another party’s rights. The buyer should reconcile possession with purchase documents, payment arrangements and the relevant contracts.
Ageing and condition also affect value. Expired products, obsolete spare parts and goods that require relabelling may create disposal or compliance costs. The purchase agreement should define how such items are treated in the price calculation, rather than leave their value to a general accounting warranty.
Where inventory is pledged or attached, identify the release required for the proposed transaction and who must obtain it.
Test customer credit against enforceable receivables
A receivable should be traced to the customer contract, delivery evidence and agreed payment conditions. Review overdue balances, disputes, credit notes and payments made after the accounts date. The identity of the debtor is particularly important where the distributor trades with several companies in the same group.
For an asset transaction, the transfer of receivables requires examination of the applicable assignment rules and any necessary notice or consent. The sale agreement between buyer and seller does not automatically resolve every issue affecting the debtor or third parties.
For a share transaction, the receivables remain with the target, but their collectability still affects the agreed valuation and warranty protection.
Investigate supplier rebates and side arrangements
A rebate may depend on annual volumes, timely payment or continuing appointment as distributor. An expected rebate should not be treated as an unconditional asset if the contractual conditions have not been met.
The review should identify:
- Written rebate agreements and later amendments.
- The supplier entity responsible for payment.
- Conditions outstanding at completion.
- Rights of deduction or clawback.
- Payments directed to owners or related parties.
- The effect of the acquisition on eligibility.
Ask the supplier to confirm material entitlements through an appropriately authorised process. An undocumented assurance from the seller’s sales manager may not establish the target’s right against the supplier.
Translate findings into purchase price protection
The acquisition agreement can use completion adjustments, specific warranties and indemnities to address identified risks. Those mechanisms should state the calculation method, evidence required and procedure for resolving disagreements.
A general warranty that the accounts are accurate may not adequately resolve a known disputed customer balance. The parties may instead agree an exclusion, retention or payment tied to actual recovery, subject to a legally workable structure.
The buyer should also check distribution appointments for change-of-control, assignment and termination provisions. Acquiring the target’s shares does not guarantee that every supplier relationship will continue, particularly where contractual rights are conditional on consent.
The acquisition and any restrictive arrangements also require examination under Iraqi competition law and its implementing requirements. Required registrations or approvals should be reflected in the completion conditions and transaction timetable.
Etihad Law Firm supports Turkish acquisitions of Iraqi distributors through legal due diligence and contract review. Connecting inventory ownership, customer debt and supplier entitlements to the transaction documents helps distinguish assets that support the price from exposures that require a specific allocation between buyer and seller.