WTW recently released the results of its 2024 Acquirers’ Incentive Plan Survey and reported that 56% of respondents provided special, one-time compensation to employees involved in M&A. But these companies typically did not formalize their approach to these special incentives through a policy or written guidelines. Only 16% reported that they had a policy. 45% had a history, past practice or guidelines, but no formal policy, and 39% had no policy or guidelines before doing so.
These awards are generally not provided to top execs, and the target value ranged substantially by employee level. Employees in shared services functions were most likely to be included. More than half of the companies waited until after closing to communicate the awards.
The alert concludes that companies could improve their approach to these special awards to ensure they are delivered strategically. It notes the following “improvement opportunities” identified by survey respondents:
– Set clear objectives from the start against which to measure
– Include different principles/parameters for successful vs. unsuccessful M&A
– Better communicate any changes
– More formal/consistent process for acquisitions
– Reserve bonuses for larger divestitures/integration executive
– Use a more robust framework for varying deal sizes/effort
– Look for a dedicated/more meaningful incentive plan
– Having a checklist/process for bringing on oversees employees
After challenging years of post-Brexit CMA merger reviews, this Fried Frank article points to some promising trends for merger reviews in the UK in the last few months.
With a renewed political focus on positioning the UK as “open for business,” the government has signalled an appetite to recalibrate the CMA’s approach. The abrupt dismissal of the CMA’s Chair in January 2025 and the appointment of Doug Gurr — a former Amazon executive — in his place, underscores a desire for more business-friendly leadership. In March 2025, the CMA announced several initiatives aimed at restoring confidence in the merger regime: a new “Mergers Charter” signalling a more pragmatic and efficient approach to reviews; a consultation on its remedies policy; and a commitment by the CMA to clarify its jurisdictional scope.
This “Mergers Charter” sets forth four principles and expectations regarding how the CMA will engage during merger reviews — and those include improving the pace and predictability.
Pace – faster pre-notification and straightforward Phase 1 reviews: the CMA will aim to conduct reviews as quickly and efficiently as possible and streamline reviews to focus on areas of concern. To this end, the CMA indicated[11] that it was looking to introduce a new ‘key performance indicator’ that will aim to complete the pre-notification phase of a merger review within 40 working days (rather than the current average of 65 working days) and straightforward Phase 1 cases to 25 working days (from the current 35 working days target).
Predictability – revisiting jurisdictional thresholds and better engagement with merging parties during review procedure: the CMA will look to improve the predictability of the merger control regime by clarifying the scope of its jurisdiction—specifically, the circumstances under which it considers transactions in scope for review. To that end, the CMA will launch a consultation seeking feedback on improving transparency on the (currently vague) jurisdictional thresholds (described below). Separately, the CMA will invite increased direct engagement between investors and the CMA in merger procedures (as opposed to current channelling through advisors) to streamline communication and accelerate the review process.
It also says that the CMA will look to use its powers to clear deals with remedies, rather than prohibit them. The alert also notes that, “the CMA’s intention to align with remedies agreed in other jurisdictions reflects a forward-thinking and coordinated approach to global mergers, ensuring that parties are not unduly burdened by conflicting international regulatory requirements,” with the overall goal to make “the remedies process more business friendly.”
Some predicted the demise of SPACs after the new disclosure rules went effective last summer, but this Norton Rose Fulbright memo says companies looking to go public should be seriously considering a de-SPAC as a quicker, cost-effective way to go public during a limited IPO market. While it acknowledges that “regulatory loopholes were the founding principle of SPACs,” it argues that the new rules will improve the process and, by doing so, render SPACs “an even more appealing option.”
Here are a few of the benefits the article says the de-SPAC approach still offers versus IPOs:
– Price certainty: The price discovery process in a traditional IPO typically occurs one day prior to the IPO, at the conclusion of a six-month process of going public. The underwriters typically undervalue the company to provide an advantage to their traditional institutional clients. In contrast, the price discovery process in a SPAC merger typically occurs upfront, typically upon the signing of a term sheet, and is a bilateral negotiation between the SPAC and the target. This process frequently results in a higher valuation of the company.
– Timing: Usually taking 9 to 24 months, traditional IPOs expose businesses to a range of outside economic changes that could compromise valuation and lower investor appetite. The regulatory load related to IPOs, comprised of extensive SEC additional filings and compliance measures, further extends the time period it takes for a company to go public. On the other end of the spectrum, the likelihood of negative market conditions derailing the public listing process is significantly reduced by choosing to execute a SPAC transaction within a six-month window.
– Projections: Critics contend that SPACs are susceptible to inflated valuations due to the excessive scope for speculative projections they allow. Nevertheless, pro forma projections are indispensable for emerging companies that possess disruptive innovation and limited historical performance. In a traditional IPO, historical performance is predominantly considered. In contrast, SPACs allow companies to provide forward-looking projections, thereby being more attractive to such investors who attach premium to a company’s long term economic performance and growth. The problem is not the projections themselves, but rather the necessity for enhanced regulatory oversight to guarantee transparency—a matter that the SEC’s new regulations are attempting to resolve.
– SPAC Sponsors: SPAC sponsors will often raise debt or private investment in public equity (PIPE) funding in addition to their original capital to not only finance the transaction, but also to stimulate growth for the combined company. The purpose of this backstop debt and equity is to guarantee the successful completion of the transaction, even if the majority of SPAC investors redeem their shares. Furthermore, a SPAC merger does not necessitate an extensive roadshow to pique the interest of investors in public exchanges (although raising PIPE necessitates targeted roadshows). Sponsors of SPAC are frequently seasoned financial and industrial professionals. They may utilize their network of contacts to provide management expertise or assume a role on the board.
Last week in Desktop Metal v. Nano Dimension (Del. Ch.; 3/25), Chancellor McCormick ordered the specific performance of a merger agreement — requiring a buyer that got cold feet to stop dragging its feet — as she puts it, “chalking up yet another victory for deal certainty!” The target argued that the buyer was avoiding its obligations by delaying signing a national security agreement with CFIUS, which would have satisfied the final closing condition.
The specific performance isn’t a surprising result given that, as the opinion notes, “the contractual scheme seemed designed to ensure deal certainty and speed.” And buyers get cold feet often. But the events leading up to buyer’s attempts to get out of the deal are somewhat unique.
As Bloomberg’s Matt Levine notes, while a target’s shareholders usually have an opportunity to vote on a deal, buyer’s shareholders often do not, so what do they do if they don’t like an acquisition? Theoretically, he says:
– The buyer’s shareholders can launch a proxy fight to replace the board of directors of the buyer.
– If they win the proxy fight, the shareholders’ newly elected directors can replace the executives who approved the deal with new executives who want out.
Well, that’s exactly what the buyer’s second-largest shareholder did in this case.
“After Nano’s Board approved the Merger Agreement, Murchinson launched a proxy contest premised primarily on Nano’s opposition to the Desktop merger,” arguing that the Desktop deal was “overpriced” and “misguided” and destroyed (Nano) shareholder value. Murchinson won the proxy fight and got a total of four directors on the board. “. . . “The new board started terminating Nano executives, seeming to focus on those who supported the Merger.” Nano was now looking to do what Murchinson had argued for all along: Wait for Desktop to go bankrupt and buy its assets more cheaply.
But, as Matt points out, they’ve got a problem.
Uh … then what? There is a signed merger agreement. The target can get out of the merger if its shareholders vote it down, but there is no similar out for the buyer. If the buyer’s new executives show up at the weekly integration meeting and say “actually sorry the deal’s off,” the target’s executives will say “no it isn’t.” The buyer doesn’t get to change its mind just because its shareholders don’t like the deal.
Well, that’s what Chancellor McCormick concluded.
The problem with Murchinson’s plan for Nano to purchase Desktop out of bankruptcy was that Nano had already agreed to purchase Desktop pursuant to the Merger Agreement . . . Nano, meanwhile, failed to prove a failure of any covenant or condition.
The buyer probably saw this coming, and after the decision announced that it is considering all options, but, despite the ongoing litigation, has been diligently preparing for integration.
Woodruff Sawyer recently published this “Guide to D&O Insurance for DeSPAC Transactions.” The Guide is full of useful nuggets about the D&O insurance process for deSPAC deals. For instance, this excerpt notes that the traditional practice of having the SPAC buy D&O insurance policies that included pre-negotiated terms for a tail policy may not be the right approach today:
Historically, the practice was for SPACs to purchase D&O insurance policies that were of the same duration as the SPAC (be it 18 months or two years). These policies also had pre-negotiated terms for the SPAC tail policy. This meant that carriers and the SPAC sponsors knew at the time of the SPAC IPO what the cost of the tail policy would be.
However, having the SPAC purchase a separate tail may no longer be the best option. SPAC teams and their target companies will want to discuss the possibility of placing a combined go forward D&O policy that covers:
– The SPAC and its directors and officers for post-merger claims related to pre-merger activities
– The private company target and its directors and officers for post-merger claims related to pre-merger activities
– The go-forward operating company and its directors and officers for future claims
This kind of policy is sometimes referred to as “the SPACage” or “the de-SPACage”.
Why purchase this kind of combined policy? The main reason is that the combined policy can save substantially on premium costs compared to the historical way of doing things.
The Guide acknowledges that this new approach is more complicated and requires negotiations with the carrier to appropriately tailor policy language, and that it only works when everyone is on the same page when it comes to policy terms and limits, especially since there will be one limit covering many different parties.
On Tuesday, Delaware Gov. Matt Meyer signed SB 21 into law. The legislation amends Section 144 of the DGCL to, among other things, establish broad safe harbors for transactions with controlling stockholders and other insiders. It also significantly narrows the information available pursuant to a books & records demand under Section 220 of the DGCL. While the amendments are now law, it’s unlikely that the fight over them is going to end anytime soon.
In that regard, at least one commenter has noted that there may be questions about the constitutionality of some of the provisions of SB 21. The concern is the language in Section 144 that prohibits equitable relief in the case of transactions approved in compliance with the safe harbors. Prof. Eric Talley has pointed out that if this language is read as limiting the equitable powers of the Chancery Court as set forth in the Delaware Constitution, it may not fly. He cites these excerpts from the Delaware Supreme Court’s 1951 decision in DuPont v. DuPont in support of that proposition:
“Briefly stated, the question posed is this: Is the grant to the Court of Chancery by Section 10 of Article IV of the Constitution of 1897 of “all the jurisdiction and powers vested by the laws of this state in the Court of Chancery” subject to unrestricted legislative curtailment [by the General Assembly under Section 17 of Article IV]?”
[The Answer: No]
“Section 10 of Article IV is a guarantee to the people of the State that equitable remedies will at all times be available for their protection. This guarantee the Legislature may not ignore….Section 17 does not authorize the Legislature to alter, amend or repeal any part of the jurisdiction of the Court of Chancery conferred upon it by Section 10 of Article IV of the Constitution.”
“Section 17 is not an authorization to the Legislature to restrict Chancery jurisdiction to less than it was in 1792. We think the Constitutions of 1792, 1831 and 1897 intended to establish for the benefit of the people of the state a tribunal to administer the remedies and principles of equity. They secured them for the relief of the people. This conclusion is in complete harmony with the underlying theory of written constitutions. Its result is to establish by the Judiciary Article of the Constitution the irreducible minimum of the judiciary. It secures for the protection of the people an adequate judicial system and removes it from the vagaries of legislative whim.”
In addition to the potential constitutional issues with the statute, Prof. Stephen Bainbridge raises the possibility of the Chancery Court engaging in an end run around the limitations of the statute in reliance on Schnell v. Chris-Craft’s proposition that “inequitable action does not become permissible simply because it is legally possible.” Of course, he also recognizes that the language in the statute itself may make turn this end run into a dead end:
Note that SB 21 says that acts by directors, officers, and controlling shareholders may not, inter alia, “be the subject of equitable relief” if appropriate cleansing actions are taken. Does that foreclose the Schnell end-run? It depends on what you think “equitable relief” means. If you think it means that any relief granted pursuant to the court’s exercise of its inherent equitable powers under Schnell is “equitable relief,” then the end run likely won’t work. But is there another reading?
Of course, there’s always another reading – and I’ll be surprised if we don’t hear some arguments about alternative readings in the very near future. We’re posting memos on the 2025 DGCL amendments in our “State Laws” Practice Area.
Aumni and Fenwick recently released their latest “Venture Beacon,” a quarterly report on the state of the venture capital market. This one covers the fourth quarter of 2024, and this excerpt highlights some of the survey’s key findings:
– The second half of 2024 saw improvements in capital raised and pre-money valuations, particularly at the top end of the market, suggesting potential positive momentum into 2025.
– Down rounds decreased in prevalence for late-stage companies, and extension rounds returned to levels seen in 2019 and 2020, indicating a relative improvement in market health.
– Despite the increase in up rounds and pari passu financings for late-stage companies, there was a notable increase in the prevalence of pay-to-play provisions in Series B and later rounds, continuing an upward trend since 2022, highlighting a strategic shift towards restructuring preference stacks and
prompting investors to support later stage companies in achieving stability and growth.
– Startup cohorts from 2021 and 2022 were less likely to secure follow-on capital within two years compared to those from 2019 and 2020, highlighting ongoing challenges in deal velocity and graduation rates.
– While there are encouraging signs of growth, extended fundraising timelines and lower stage-to-stage graduation rates suggest that stakeholders should remain vigilant to both opportunities and potential challenges in 2025.
As anyone who has been involved in an effort to sell a troubled company can tell you, it’s an extremely stressful process, particularly for members of the board who know that every decision they make is likely to be second-guessed by creditors and shareholders and closely scrutinized by a court. This brief Goodwin memo highlights some of the things that boards should keep in mind as they manage the sale process for a distressed company. This excerpt discusses fiduciary duty issues and the need for transparency, disclosure and conflicts management:
– Understand Fiduciary Duties and Maximize Enterprise Value. Directors of insolvent companies or those operating in the “zone of insolvency” remain subject to the same fundamental fiduciary duties as directors of solvent corporations: care, loyalty, and good faith. However, directors of an insolvent company must also consider creditors’ interests because creditors become the residual beneficiaries and may gain standing to bring fiduciary breach claims.
The primary focus should be maximizing the value of the enterprise for the benefit of all stakeholders. This often requires balancing competing interests while maintaining a clear focus on overall value preservation and enhancement.
– Prioritize Disclosure, Transparency, and Conflict Management. Full disclosure of potential conflicts is essential. Boards should consider appointing experienced, independent directors to ensure that conflicts do not compromise the process and leave board decisions open to second-guessing in the future. In some cases, it may be necessary to establish and empower a special committee of independent directors for this purpose.
Document all deliberations thoroughly. Courts frequently review board minutes and supporting materials when evaluating whether directors fulfilled their fiduciary obligations. A well-documented record demonstrating thoughtful consideration of alternatives can provide crucial protection against future challenges
Other topics addressed in the memo include the need to consider all alternatives and test the market, the importance of realistically stress-testing liquidity and its impact on deal timing, and the requirement for the board to focus on valuation and compliance with contractual and other obligations when it comes to distributions of the sale proceeds.
The debate over Senate Bill 21 continues to rage on, while the legislation itself, which would amend the DGCL to provide a broad safe harbor for controlling stockholder transactions, is moving through the Delaware General Assembly at near warp speed. I’ve tried to stay on top of the back-and-forth over the legislation, but it’s getting harder to separate the signal from the noise as both partisans and opponents flood the zone with their messages about the apocalyptic impact the bill’s passage or rejection will have on Delaware’s status as the nation’s preferred jurisdiction of incorporation. With that qualification, here are what I think are some of the more significant recent developments relating to SB 21:
– Opt-in Proposal. A group of law professors submitted a letter to the General Assembly urging that SB 21’s safe harbor be converted into an opt-in provision that would require companies to amend their certificate of incorporation in order for it to apply. Here’s an excerpt from the letter:
By embracing an opt-in framework, Delaware can reaffirm its commitment to a corporate governance system that is enabling, adaptable, and responsive. This approach satisfies every legitimate concern of controlled companies with minimal risk to Delaware’s celebrated expert judicial system and rich body of precedent. Adding an opt-in would not only preserve Delaware’s status as the premier corporate law jurisdiction, but it would double down on the key principles that have made the state successful: choice, flexibility, and the wisdom of market driven evolution.
The opt-in idea appears to have originated with Profs. Eric Talley, Jeff Gordon and Stephen Bainbridge, and this recent blog from Prof. Bainbridge summarizes the letter’s arguments. While the letter has been signed on to by 26 law profs, at least one heavy hitter, Berkeley’s Steven Solomon, is skeptical of the proposal, arguing in a LinkedIn post that “the proposal does not address the merits of the actual provisions or why it is indeed optimal. Rather, it is more of a thought experiment that would create a problematic regime of two classes of companies.”
– Process Criticism. Regardless of your position on SB 21, the process by which the legislation reached the General Assembly represents a pretty significant departure from the norm, and the optics of it are pretty bad. CNBC laid out some of the details on how the bill came to be, and its coverage highlighted the role that concerns about Meta’s proposed DExit played in the way the process unfolded. While most critics have focused on the Tornetta litigation & Elon Musk as a driving force behind the legislation, CNBC revealed that Meta was directly involved as well. CNBC’s revelation that Zuck was lurking behind the scenes reminded of Don Corleone’s famous line in The Godfather – “I didn’t know until this day that it was Barzini all along.”
– D&O Insurance Implications. Over on his blog, Francis Pileggi summarized commentary from panelists at a recent conference who addressed the implications of SB 21 for D&O insurers. The blog highlights several comments from the panelists, including the prediction that “the outcome of SB 21 will be the biggest topic in the D&O world for 2025.”
– Economic Impact of SB 21. The Delaware Business Times published an opinion piece by a Wharton economist who contends that SB 21’s impact on fiduciary duty litigation will cost Delaware plenty. He foresees a “reduction in revenue from fiduciary duty litigation of between $71 and $142 million with a “base case” estimate of $107.5 million.” At the low end, his assumption is based on a 33% reduction in fiduciary duty lawsuits, while his base case assumes a 50% reduction in those claims and high-end case assumes a 66% reduction. Those kinds of numbers make it easy to see why the plaintiffs’ bar is up in arms about SB 21, but if his projections are anywhere close to being correct, SB 21 is going to take a big bite out of defense firms as well.
Meanwhile, the legislation itself sailed through the Delaware Senate and was originally scheduled for a vote in the House last Thursday. That didn’t happen, but it still looks like this legislation will likely be on the Governor’s desk by the end of the month.
While Delaware’s SB 21 was the most hotly debated topic at Tulane’s Corporate Law Institute earlier this month, there were also lots of great discussions surrounding shareholder activism and engagement. Tiffany Posil, Chief of the Office of M&A in the Division of Corporation Finance, joined the panel “Hot Topics in M&A Practice” and shared some helpful comments on common questions that have come up since the mid-February release of updated CDIs on the filing of Schedules 13D and 13G.
Here’s a summary of her comments on three common questions. (Keep in mind that all Staff comments are subject to the standard disclaimer that the views are the person’s own in their official capacity and not necessarily reflective of the views of the Commission, the Commissioners, or members of the Staff, and our summaries are based on our real-time notes.)
– Is publishing a voting policy or guideline viewed as influencing control with no other actions taken? No; these policies are not targeting a particular company and apply to all the filer’s portfolio companies. Even where they have bright line conditions (for example, to say that the investor will always vote “against” if the company doesn’t take a particular action), they are not considered an attempt to influence control at a particular company, and the CDI permits 13G filers to express views and how those views impact its voting decisions.
– What if investors then meet with an issuer to discuss those guidelines? The CDI allows for a meeting and discussion regarding policies, but 13G status is at risk the more the discussion becomes specific or insistent or turns into a negotiation (like demanding actions in exchange for votes). She also noted that company-initiated meetings are less likely to call filer status into question, but that doesn’t mean that an investor has a “blank check” to say whatever it wants in a company-initiated engagement and remain a 13G filer.
– What is the intent behind the use of “implies” and “implicitly conditions its support”? These words were used to make sure the CDI didn’t “imply” that 13G filers can continue to use Schedule 13G as long as they don’t say magic words like “We’re going to vote against a director,” where all other actions suggest that that’s what they’re going to do. (Note the parallel to Regulation FD where companies can trip up Regulation FD when they convey information “the meaning of which is apparent though implied.”)
Finally, she stressed that the examples provided in the CDI are illustrative only and not the only instances where engagement could be considered influencing control and the guidance was not intended to chill or impede communications.