Category: Deal Terms
Taking a Play out of the Financial Acquirer’s Playbook
As the NFL season gets underway, it is interesting to see how certain plays go from fringe status to near-universal. A recent example is the “run-pass option” that, before finding a home in every NFL team’s playbook, was used only in high school and college football games. [1] Coaches survey plays […]
Use of Earn-Outs to “Bridge” the Valuation Gap
There’s an old saying, probably at some point attributed to Abraham Lincoln or Einstein, that a bridge shows no allegiance to either side. It’s a wonderful metaphor and one that dealmakers would be wise to remember when working to construct agreements to solve for divergent views on value. What two […]
MAEjor Ruling: Delaware Court of Chancery Finds Target Suffers Material Adverse Effect and Acquirer Could Back Out of Transaction
M&A practitioners have long advised boards of directors that the Delaware courts have never found that the events or circumstances in a particular transaction met the contractual standard of having a material adverse effect (or MAE) as defined in a merger or acquisition agreement. Therefore, the board should have a […]
The Art of Drafting Milestones for an Earn-Out
Former stockholders of SARcode Bioscience were recently denied a claim that they were entitled to be paid $425 million in milestone payments under a merger agreement. The decision provides an anecdotal lesson in drafting milestones and suggests that the more technically prescribed milestones may be more difficult to meet, even […]
Non-Competes for California Employees in M&A Deals: Don’t Fudge It
Post-employment non-compete covenants are generally invalid in California, with certain limited but important exceptions like when a business or associated goodwill is sold and the buyer – as part of the deal – wants to prohibit certain sellers from competing with their former business. Consequently, buyers of California-based businesses generally […]
Chicago Bridge Reversal Reiterates Need for Consistent Accounting in Working Capital True-Up
The vast majority of private company acquisitions contain some type of purchase price adjustment to account for any changes in certain financial metrics (including working capital) of the target between a specified reference date (or target) and the closing date. For a variety of reasons (including the inability to predict […]
Monetizing an Earn-Out – Does That Make It a “Security?”
In life sciences/medical technology transactions, buyers and sellers often use milestone-based and sometimes royalty-based contingent consideration to compensate sellers for assets that are in various stages of development from clinical- to development-stage to product commercialization.[1] In licensing transactions, there is an established secondary market through which licensors may monetize their […]
When Approval for a Drug “Indication” Gets Murky: Drafting Milestones to Avoid Disputes
According to a recent study by SRS of recent private life sciences deals, disputes over earn-outs arose in about one-third (36%) of all milestones that were expected to be hit by September 2016.[1] While most disputes were not about contract interpretation issues regarding whether an event triggered the milestone or […]
2017 M&A Trends Series: Negotiating Anti-Reliance Language
So far this year, deal parties are approaching M&A with cautious optimism. This series of Cooley M&A blog posts include some brief observations that offer some M&A highlights over the past year and our thoughts for the year to come. Negotiating Anti-Reliance Language Buyers continued to assert fraud claims in private […]