March 2, 2021

Selling the Company: A Practical Guide for the Sale Process

DLA Piper recently released this 44-page guide to selling a company. The title – “Selling the Company: A Practical Guide for Directors & Officers” – suggests that the publication’s target audience is non-lawyers, but lawyers (particularly those who aren’t regularly involved in sell-side M&A) will also find it to be a useful reference.

The guide provides an overview of the entire M&A process, from confidentiality agreements to appraisal rights.  Along the way, it reviews key Delaware doctrines applicable to the sale process & deal protections, alternative transaction structures, issues associated with interested mergers, and other matters. The guide also takes an in-depth look at the terms of the merger agreement itself.  For instance, this excerpt addresses “naked no-vote”  provisions:

A naked no-vote is “a shareholder vote to decline” a proposed merger agreement “that is not followed by the acceptance of an alternative transaction.” Some buyers negotiate for deal protection measures in connection with such no-votes by a selling company’s shareholders. Most notably, buyers targeting Delaware corporations have negotiated for “termination fees contingent solely on a ‘naked no vote.’”

The Delaware Court of Chancery has approved naked no-vote fees “of up to 1.4% of transaction value.” Indirectly, through reference, the same court has provided that naked no-vote fees are practically termination fees and have suggested that termination payments of such kind equating to under 4 percent of transaction value are generally “unremarkable.”

In reviewing the decision to accede to a naked no-vote fee in connection with a proposed business combination, the justices and chancellors of the Delaware courts will “undertake a nuanced, fact intensive inquiry” that examines the “reasonableness” of such terms in a manner “contemplated by the Unocal and Revlon standards….” In searching the reasonableness of a board’s decision to agree to a buyer’s demand for a naked no-vote fee, “the court [will] attempt, as far as possible, to view the question from the perspective of the directors themselves, taking into account the real world risks and prospects confronting them when they agreed to deal protections.”

Moreover, because a naked no-vote fee is a deal protection mechanism, it will be viewed in conjunction with any other such measures applicable to a particular merger agreement and, as a whole, cannot be preclusive or coercive if it is to survive enhanced scrutiny in the Delaware courts.

Other potential merger agreement terms are treated in similar depth. As you can see from this excerpt, this guide may be targeted to directors and officers, but there’s a lot for lawyers to sink their teeth into as well.

John Jenkins