Merger & Purchase Agreements: The Final Contract
Navigate the complexities of definitive M&A agreements with expert legal and valuation guidance
Get Agreement SupportTypes of M&A Agreements
Legal document governing the combination of two companies into a single entity, typically used in mergers of equals or statutory mergers.
Key Characteristics:
- • Statutory merger structure under state law
- • Surviving entity and dissolved entity
- • Automatic asset and liability transfer
- • Shareholder approval typically required
- • Appraisal rights may apply
Contract for the sale of assets or stock, more commonly used in acquisitions where one company purchases another.
Key Characteristics:
- • Asset or stock purchase structure
- • Buyer and seller remain separate entities
- • Specific asset and liability allocation
- • More flexibility in structuring
- • Selective shareholder approval
Essential Agreement Provisions
- • Base purchase price calculation
- • Adjustment mechanisms
- • Payment terms and timing
- • Escrow and holdback provisions
- • Earnout structures and metrics
- • Corporate organization and authority
- • Financial statement accuracy
- • Material contracts and commitments
- • Compliance with laws
- • Environmental and regulatory matters
- • Pre-closing operating restrictions
- • Best efforts to close
- • Regulatory approval cooperation
- • Employee and customer retention
- • Post-closing integration support
- • Regulatory and antitrust approvals
- • Third-party consents
- • No material adverse change
- • Accuracy of representations
- • Financing conditions
Indemnification Framework
| Component | Typical Terms | Key Considerations |
|---|---|---|
| Survival Period | 12-24 months (general), longer for tax/environmental | Balance discovery time vs. ongoing exposure |
| Deductible/Basket | 0.5-1.5% of purchase price | Tipping vs. dollar-one recovery |
| Cap/Maximum | 10-25% of purchase price | Fundamental reps often uncapped |
| Escrow Amount | 10-20% of purchase price | Should cover most likely claims |
Agreement Negotiation Strategies
Risk Mitigation:
- • Comprehensive representations and warranties
- • Broad indemnification coverage
- • Material adverse change protections
- • Strong closing conditions
Operational Control:
- • Pre-closing operating covenants
- • Key employee retention agreements
- • Customer and supplier protections
- • Integration cooperation requirements
Liability Limitation:
- • Narrow representation scope
- • Short survival periods
- • High deductibles and caps
- • Knowledge qualifications
Deal Certainty:
- • Limited closing conditions
- • Financing commitment requirements
- • Reverse termination fees
- • Minimal operating restrictions
Common Agreement Challenges
Disagreements over purchase price adjustments, working capital calculations, and earnout metrics.
Solution: Clear definitions and independent accounting procedures
Antitrust and regulatory approvals taking longer than expected, causing deal uncertainty.
Solution: Realistic timelines and "hell or high water" provisions
Disputes over what constitutes a material adverse change and buyer's right to walk away.
Solution: Specific definitions and carve-outs for known risks
Agreement Best Practices
- • Engage experienced M&A counsel early
- • Ensure consistency with term sheet and LOI
- • Include detailed definitions and schedules
- • Address all material due diligence findings
- • Plan for post-closing integration needs
- • Include dispute resolution mechanisms
- • Balance risk allocation fairly between parties
- • Include appropriate insurance requirements
- • Address key person and customer risks
- • Plan for potential regulatory challenges
- • Include material adverse change protections
- • Consider tax optimization structures
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