Acquisition agreements in M&A transactions frequently include provision for payment to be made at closing based on estimates of certain financial metrics that are later subject to a purchase price adjustment based on a final determination (referred to as a “true-up”) within a few months following closing. These metrics may include a target’s cash, debt, unpaid transaction expenses and working capital (excluding cash), and sometimes others. The definitions that correspond to these items, and what particular items are included or excluded from each, are often the product of significant negotiation, as the final purchase price can move materially up or down based on their final determination. The process of finally determining the adjustment amount following the closing can also reveal differences in the buyer’s and seller’s interpretation of accounting principles applicable to the purchase price adjustment calculation, or how those principles apply to the target’s financial statements. These differences can become a source of post-closing conflict between buyer and seller, at a time when the parties are working through transitional issues, and when the sellers may have ongoing involvement in the business. Parties will want to resolve these disputes quickly and in a cost-effective manner. To accomplish these objectives, often the purchase agreement will require that the parties submit unresolved issues to an independent accountant for final resolution. A key consideration in such referral will be the role that the accountant will play in resolving the dispute. Will the accountant act as an arbitrator or as an expert? This is an important distinction that deserves careful consideration by both sides. By engaging an accountant to act as an expert and not an arbitrator, the parties limit the scope of the accountant’s review and avoid the formalities of an arbitration.Continue Reading Expert or Arbitrator? Resolving Purchase Price Adjustment Disputes
Stephen LaSala is a partner in the firm's Corporate Practice Group and is the Chair of the firm’s Compensation Committee.
In a blog earlier this year, we discussed the Delaware Chancery Court’s refusal to enforce a sale of business non-compete in Kodiak Building Partners, LLC v Adams. We wondered then whether Kodiak represented a one-off decision or whether it augured a trend that might give buyers of businesses pause. Delaware courts seem to have answered the question. In what constitutes a notable trend for buyers of businesses, Delaware courts have twice more refused to enforce non-competes under a sale of a business analysis. Continue Reading Buyer Beware: Delaware Courts Continue to Refuse to Enforce Deal-Based Non-Competes
Courts and state legislatures continue to take aim at post-employment non-competes. In a companion blog, we recently detailed the Federal Trade Commission’s proposed rule banning post-employment non-competes. However, for years (and even under the FTC’s overreaching proposed rule), non-competes in the sale of business context have generally received less scrutiny.Continue Reading Buyer Beware: Delaware Declines to Enforce Sale of Business Non-Compete
The Main Street Lending Program, intended to provide credit support to small and medium sized businesses, became operational on July 6, 2020.[i] It includes many borrower-favorable economic terms, including a 5-year term, a low interest rate (capped at LIBOR + 3%), an interest payment deferral of 1 year and a principal payment deferral of 2 years, and a generally borrower-friendly amortization schedule.[ii] However, the Main Street Lending Program possesses certain characteristics that could negatively affect an acquisition, sale or other strategic transaction.
Since making its initial announcement in March of 2020, the Federal Reserve has released a series of documents and Frequently Asked Questions (“FAQs”) to shape and clarify the program details. This article discusses several Main Street Loan requirements (around affiliation, dealing with other debt, compensation, dividends/distributions and employee and payroll retention) that require special attention if an M&A transaction of a privately-held company is being conducted or may be on the foreseeable horizon. This article also recommends some basic execution strategies since different approaches to M&A due diligence review and transaction structuring are necessary if the acquiror, the target/seller or both have applied for or received a Main Street Loan.
Continue Reading Some Strings Attached: Main Street Lending Program And Private Company M&A