September 13, 2019

Busted Deals: How the Type of Buyer Impacts Remedy Packages

This Sidley memo discusses how the nature of that buyer may influence the package of remedies that a seller may be able to negotiate to protect itself in the event of a breach. Here’s the intro:

In exploring a potential public company sale, target boards rightly focus on the amount and type of consideration offered by potential buyers and the level of deal certainty. However, when considering offers (including at early stages in the process), target boards should also take into account the risk of a buyer breach, including in connection with a financing failure, and the remedies that will be available to the target as a result. Although, as a matter of principle, the consequences to the target of a failed deal should not be different depending on the type of buyer, as discussed below, the remedies offered by strategic buyers often dramatically differ from the remedies offered by financial buyers.

In public M&A transactions, there are generally three potential remedies available to targets in the event of a buyer breach: (1) specific performance of the merger agreement (and the equity commitment letter, if any), (2) termination of the merger agreement with payment of a reverse termination fee and (3) termination of the merger agreement with the right to recover monetary damages for pre-termination breach.

The memo discusses the different approaches that strategic buyers and private equity buyers take to these potential remedies. I’ve touched on some aspects of this topic over on the “John Tales” blog, but the memo goes on to suggest some specific actions that the seller’s board can take to negotiate the best outcome when it comes to the package of remedies that will be available to it in the event of a breach.

John Jenkins