Last month, I blogged about the Delaware Supreme Court’s decision in the Paragon Metals case, in which the Court held that buyers reasonably relied on the seller’s reps & warranties for purposes of asserting a fraud claim despite shortcomings in the buyer’s due diligence process. Last week, in In Re Swervepay Acquisition, LLC, (Del. Ch.; 7/26), the Chancery Court reached a similar conclusion with respect to a seller’s fraud claims.
The litigation arose out of the acquisition of SwervePay, a payments facilitator (PayFac), by a portfolio company owned by private equity sponsors. The sponsors had previously acquired the portfolio company based on their belief that its software platform provided access to at least $34 billion of payment volume that could be monetized through a PayFac business. Those figures were repeatedly cited during the negotiations with the target, and it ultimately agreed to a deal structure that included substantial earnout payments tied to achieving that payment volume.
However, prior to the signing, the sponsors and their advisors learned that the actual potential payment volume was significantly lower than what was represented but did not disclose that fact to the target. After closing, it became clear that the earnouts were effectively unattainable, and the target’s former owners sued for fraudulent inducement.
In challenging the plaintiffs’ argument that their reliance on the buyers’ extracontractual representations about payment volumes was reasonable, the defendants pointed to alleged shortcomings in the target’s due diligence investigation and its failure to bargain for a contractual representation concerning payment volumes. Chancellor McCormick’s opinion first addressed the argument relating to the target’s due diligence:
Buyers quibble with Sellers’ diligence efforts. They raise arguments describing steps that Sellers could have taken instead of relying on the February 8 Email, including speaking to management, retaining advisors, or speaking with Durrett. But the court’s inquiry is not whether Sellers could have eventually discovered the truth had they continued to dig. The inquiry is whether Sellers’ reliance on the false representation was reasonable.
It was. Sellers inquired about Ontario’s monetizable payments volume several times. Sellers then asked to see data allowing them to verify Buyers’ statements. . .
Here, Sellers did not seek diligence regarding the payments market generally. Rather, they sought information specific to [the portfolio company]—the payments volume within [the portfolio company’s] system. Buyers were the most reliable source for that information and Sellers acted reasonably in relying on Buyers’ representations.
The Chancellor also rejected the defendants’ argument concerning the impact lack of a rep in the purchase agreement on the plaintiffs’ ability to rely on its extracontractual representations concerning payment volumes. In doing so, she pointed to the agreement’s absence of an anti-reliance clause:
Buyers also argue that Sellers’ failure to secure a contractual representation regarding Ontario’s payments volume weighs against a finding of reasonable reliance. This argument also fails. Parties to merger transactions can contractually circumscribe exposure to post-closing claims of fraudulent inducement. But Delaware law requires that they do so explicitly through unambiguous antireliance language. Buyers do not dispute that the Purchase Agreement contains no anti-reliance language.
Chancellor McCormick ultimately concluded that the plaintiffs established all the elements of their fraud claim, and awarded them the full amount of the earnout payments set forth in the agreement as damages.
We’ve recently posted another episode of our “Understanding Activism with John & J.T.” podcast. This time, Cleary’s J.T. Ho and I were joined by Christine O’Brien, Interim Head of Special Situations & IR at Edelman Smithfield, and Lex Suvanto, Edelman Smithfield’s CEO. Topics covered during this 47-minute podcast include:
– The biggest mistake boards make in the first 48 hours after an activist shows up.
– The problem with “listen-only” and better strategies for the first engagement.
– The downside of delay tactics.
– The line between managing the narrative and damaging trust.
– Activist expectations around early board-level engagement.
– How public comments during activist engagements can shift the balance of power.
– Is there ever a place for “bedbug letters”?
– How defensive moves like poison pills or bylaw changes are perceived by long-term investors.
– The risk of preemptively appointing directors in response to activist pressure.
– How overly aggressive standstill terms derail settlements.
This podcast series is intended to share perspectives on key issues and developments in shareholder activism from representatives of both public companies and activists. We continue to record new podcasts, and they’re full of practical and engaging insights from true experts – so stay tuned!
With traditional exit opportunities increasingly difficult to come by, private equity continuation funds have attracted a lot of interest in recent years, but this Proskauer memo says that there are questions that GP’s need to answer prior to launching a continuation vehicle (CV) if they want to maximize their chances of success. This excerpt discusses the key terms that should be considered at the outset of the process:
The lead investor will negotiate the terms of the transaction on behalf of the CV and the wider investor group. Sponsors should still give thought to key terms early in process.
One key term is whether to offer reinvesting selling fund investors a status quo option with respect to economics. While investors are generally expected to participate on new terms, sponsors have increasingly offered status quo management fees to reinvesting investors. This aligns with the ILPA guidance and is therefore receiving greater scrutiny from selling fund LPACs.
For carried interest, all investors typically participate in the same arrangements, often through tiered profit structure with a number of return multiple and/or preferred return tests. This promotes alignment between sponsors and buyers and demonstrates sponsor conviction in the underlying asset.
On the transaction side, the allocation of costs and expenses among the sellside and the buyside is often a key negotiated point. Some costs clearly belong on one side or the other: CV establishment and lead investor costs are borne on the buyside by the CV, and election-process and other sellside process costs borne by the selling fund. Some costs however, are not so clearly apportioned, and the precise apportionment of those can become heavily negotiated. Having a clear idea of the broader transaction budget and the apportionment of costs is therefore an important consideration, particularly to the extent allocated to the sellside where those costs will usually impact the net proceeds available for reinvesting selling fund LPs.
The memo says that other questions that should be addressed include whether the asset & business plan is a good fit for a CV transaction, the sponsor’s ability to demonstrate alignment and transparency on valuation and conflicts, how to manage LP communications and timing, and how to convincingly demonstrate sponsor alignement.
The Delaware Chancery Court recently provided a reminder to those drafting acquisition agreements that if you want to create a contractually binding obligation, the recitals section of the agreement isn’t generally the place to do it. In Feeney Brothers Excavation Trust v. Artera Services, (Del. Ch.; 7/26), the Court rejected claims that a buyer breached the terms of an Equity Purchase Agreement by failing to provide what they alleged was an agreed upon dollar amount of rollover equity.
In support of its claim that the buyer had agreed that the rollover equity would have a specific dollar value, the plaintiffs’ pointed to the following definition contained in the recitals section of the Agreement:
“Rollover Amount” references “an aggregate value of $30,000,000,” used in the context of describing the value of the Contributed Units.
However, the recitals were the only section of the Agreement in which a specific dollar amount was referenced, and Judge Patricia Winston, sitting in Chancery by designation, concluded that wasn’t sufficient:
Plaintiffs’ theory fails because it seeks to impose obligations via the recitals. “Generally, recitals are not a necessary part of a contract and can only be used to explain some apparent doubt with respect to the intended meaning of the operative or granting part of the instrument.” Recitals may identify the meaning of terms via definitions or “provide background and . . . offer insight into the intent of the parties.”But a recital may “not establish a substantive obligation.” And “[i]f the recitals are inconsistent with the operative or granting part, the latter controls.”
While Judge Winston agreed with the plaintiffs that reference to the recitals was necessary to identify which units were transferred or issued in the rollover transaction, and that Section 1.1 of the agreement uses the terms defined in the recitals, she characterized the plaintiffs claims as an attempt “to transform the recital definitions into a guaranty or representation and warranty regarding the units’ ‘actual value.’”
She concluded that using the recitals in this way conflicted with the operative sections of the contract. Specifically, Judge Winston pointed to a representation from sellers acknowledging that there was “no representation or warranty. . . as to the . . .desirability or value of an investment in [the post-closing entity],” except for the representations set forth in Section 2 of the Agreement. This language, she said, precluded the plaintiffs from asserting that the language of the recitals constituted a representation concerning the value of their investment.
In the latest edition of our Deal Lawyers Download podcast, Datasite’s Chief Marketing Officer Merlin Piscitelli joined me to discuss AI’s growing role in the M&A process. Topics in this 16-minute podcast include:
– AI’s role as a force multiplier
– The strengths and limits of AI tools
– Balancing AI insights with professional judgment
– Managing the legal risks of AI adoption
– Building an effective “human-in-the-loop” model
– Where AI delivers the greatest value in M&A practice
– AI’s impact on due diligence and risk assessment
– How AI will reshape the M&A lawyer’s role
We’re always looking for new podcast content, so if you have something you’d like to talk about, please reach out to me at john@thecorporatecounsel.net or Meredith at mervine@ccrcorp.com. We’re wide open when it comes to topics – an interesting new judicial decision, other legal or market developments, best practices, war stories, tips on handling deal issues, interesting side gigs, or anything else you think might be of interest to the members of our community are all fair game.
According to this Freshfields alert, more than 125 SPACs have gone public in 2026. While the Freshfields team doesn’t expect a return to 2021 levels, they do see privately held companies having a renewed interest in deSPAC transactions. While the alert notes that deSPACs may not appeal to everyone, here are situations when a deSPAC may be of interest:
– Continued Control: In most deSPACs target management continues to run the combined company post-closing. For founder led companies, or companies where the management team is heavily invested in the business, a deSPAC may prove appealing.
– Access to Public Markets: In many ways the principal benefit of a deSPAC is taking the target public and gaining a listing on the NYSE or Nasdaq. Listed companies may attract a broader investor base, aided by the visibility provided by ongoing public reporting and analyst coverage. This, in turn, may lead to new capital raising opportunities. Listed shares also increase the appeal of equity-based compensation for employees and provide currency for acquisitions. In May 2026 the SEC published proposed rules that would facilitate capital raising by, among other things, making shelf registration statements on Forms S-3/F-3 available for certain companies immediately upon completion of their deSPAC transaction.
– Alternative to an IPO: deSPACs may be viewed as an easier, more certain path to going public than an IPO. In an IPO, valuation is arrived at during the roadshow, which occurs at the end of the process, following SEC review of the registration statement. In a deSPAC, in contrast, the parties determine valuation when the business combination agreement is signed, akin to the timing in a traditional M&A transaction. Furthermore, in an IPO (whether the shares sold are newly issued by the company or sold by existing shareholders) the underwriters must identify new investors to buy the offered shares. In a deSPAC, so long as any minimum cash condition is satisfied, the parties eliminate (or substantially reduce) the need to identify new investors.
– Lower Regulatory Risk: In strategic M&A, transaction review by antitrust authorities and other governmental regulators may pose significant execution risk and add substantial cost to the process. Because SPACs are shell companies with no operations, a deSPAC may present lower regulatory risk than a transaction with a strategic buyer.
The alert also says that earlier SPAC cycles have taught us a few things. Now targets tend to be more mature, and they’re more likely to be ready to go public. Freshfields also expects earnouts to be more likely in today’s market due to valuation challenges.
Thanks to Richards Layton & Finger for speedily coming out with an alert on yesterday’s Chancery Court decision in Drakes Landing Associates v. Tilden Park Capital Management (Del. Ch.; 7/26). It made my work writing this blog easier, though I will say that, in the decision, Vice Chancellor Cook answers a significant issue of first impression — whether Revlon applies to the board of a public benefit corporation navigating a change-of-control transaction — in a pithy 29 pages. It’s a short decision you should add to your weekend reading list! In the meantime, I’ll share some snippets from the decision and the alert for a quick summary.
The decision summarizes the facts as follows:
Two of a public benefit corporation’s lenders proposed a financing transaction that would provide the company with $20 million in urgently needed financing. As part of the financing, the debt owed by the company to the two lenders would convert into equity, increasing the lenders’ stock holdings from around 25% to nearly 85%, and diluting the other stockholders. The public benefit corporation appointed an independent and disinterested special committee to evaluate the transaction. The special committee in turn retained independent legal and financial advisors and ultimately approved the deal.
The parties agreed that the financing was a change-of-control transaction to which Revlon would apply if the company was not a PBC, but disagreed on whether and how a company’s status as a PBC impacts Revlon‘s application. VC Cook said that this turned on whether Revlon is treated as imposing a standard of conduct (obtain the best price reasonably available) or a standard of review (enhanced scrutiny). The alert explains his analysis:
The Court held that the traditional Revlon obligation to seek the best price reasonably available for stockholders does not apply as a standard of conduct to PBC directors because, under Section 365(a) of the Delaware General Corporation Law (the “DGCL”), PBC directors are required to balance stockholders’ pecuniary interests, the interests of persons materially affected by the PBC’s conduct and the public benefits stated in the PBC’s certificate of incorporation. The Court explained that Revlon’s price-maximization mandate conflicts with Section 365(a)’s express balancing requirement, and that PBC directors cannot be required to pursue the highest value reasonably available for stockholders to the exclusion of the corporation’s public-benefit purpose and affected stakeholders. The Court nevertheless left open whether a modified form of enhanced scrutiny—referred to by the Court as “PBC enhanced scrutiny”—could apply to a change-of-control transaction involving a PBC as a standard of review, under which the Court would examine whether the directors’ balancing of these interests fell outside the range of reasonableness.
The Court did not directly decide this question because it found that the challenged transaction, which was approved by an independent special committee, invoked the statutory protections applicable to decisions of PBC directors under Section 365(b) of the DGCL. Section 365(b) provides, in relevant part, that with respect to director decisions implicating Section 365(a)’s balancing requirement, a director “will be deemed to satisfy such director’s fiduciary duties to stockholders and the corporation if such director’s decision is both informed and disinterested and not such that no person of ordinary, sound judgment would approve.” Because the plaintiffs conceded that the special committee members were disinterested and independent, and their allegations regarding the adequacy of the committee’s market check expressed concerns only about stockholders’ pecuniary interests without challenging the committee’s consideration of the other interests implicated by the statutory balancing test, the Court dismissed the plaintiffs’ fiduciary duty and related aiding and abetting claims. The Court also suggested that even if the corporation were not a PBC, the fiduciary duty claims would have been dismissed under Delaware’s new statutory safe harbor, Section 144 of the DGCL.
RLF says the key takeaways are that:
– PBCs are never subject to a “singular obligation to maximize stockholder value.”
– Section 365(b) of the DGCL serves as a “statutory business judgment rule” that provides significant protection against challenges to the decisions of PBC directors.
Last week, the DOJ’s Antitrust Division announced an update to its merger review process – specifically, that it plans to again implement targeted Second Request investigations – and published a model timing agreement. This Goodwin alert says:
The 2026 model introduces an “Expedited Consideration” fast track that gives parties a formal pathway to resolve or narrow a Second Request investigation without having to fully comply.
Expedited Consideration allows parties to produce focused, targeted documents and data covering what the DOJ identifies as potentially decisive issues and receive a formal response from DOJ leadership within a defined time frame. If the DOJ concludes the deal does not present material antitrust concerns based on that targeted production, it can close the investigation without requiring full compliance with the Second Request. If the DOJ concludes more is needed, it will communicate that to the parties. This is a significant structural change: Expedited Consideration formally establishes, directly in the model agreement, an early off-ramp from the Second Request process.
The alert notes that the DOJ is calling this a “resumption” of a prior approach, but also points out that negotiated quick look investigations in the past were ad hoc and case-by-case without a standardized practice or deadlines.
Expedited Consideration takes that informal practice and makes it a formal, elective option. Parties electing to enter into timing agreements now have a defined right to invoke it, with fixed submission and response deadlines built directly into the model agreement.
In April 2026, the Delaware Court of Chancery issued a significant decision interpreting the new DGCL § 122(18), which governs stockholder agreements. In the underlying case, founder and former CEO/chair Kiani sued Masimo in California for severance and a “Special Payment” under the terms of his employment agreement after resigning from the company for “Good Reason” following his removal from the board. The Special Payment (2.7 million RSUs (approximately 5% of Masimo’s outstanding shares) plus $35 million) was triggered by Kiani losing his chair title or a board “Change in Control,” and removing him for cause required a 75% supermajority board vote.
Masimo countersued in Delaware to invalidate the employment agreement as a product of breaches of fiduciary duty (relying on a Delaware forum clause in its bylaws). Despite the “employment agreement” label, the court found the agreement’s substance (governing board composition and allocating control rights long-term) made it a § 122(18) governance/stockholder agreement, citing Masimo’s own “poison pill” characterization of the arrangement.
The court held that § 122(18) abrogates the “Independent-Source Principle” for qualifying stockholder agreements and eliminates the requirement of explicit language to route fiduciary claims away from Delaware. The broad “arising out of or relating to” forum language included in the agreement was held to capture Masimo’s fiduciary duty and waste claims; the case was dismissed in Delaware and sent to California.
The employment-agreement-deemed-stockholders-agreement had a California forum selection clause. As the decision explains, “Independent-Source Principle” refers to the idea that “a contractual forum selection clause cannot encompass corporate fiduciary duty claims where the at-issue fiduciary duties arise independently of the contract.” Here’s what the decision says about that argument in the context of this case and Section 122(18):
Under the Company’s reading of precedent, Delaware courts have preserved Delaware as a forum for fiduciary duty claims to ensure the state can provide oversight for those who control its corporations. Although that may have been Delaware law once, it no longer is, at least for governance agreements under recently enacted § 122(18).
The court reasoned that Section 122(18)’s proviso (“provided that no provision of such contract shall be enforceable against the corporation to the extent such provision is contrary to the certificate of incorporation or would be contrary to the laws of this State (other than § 115 of this title) if included in the certificate of incorporation”), specifically the exclusion of Section 115 which “preserves Delaware courts as a mandatory option to adjudicate internal affairs claims” means that the “legislature authorized stockholder agreements that route internal affairs claims related thereto exclusively to a non-Delaware forum.”
The legislative synopsis expressly memorializes that intent by stating, “[t]he proviso excludes § 115, so that corporations may enter into contracts under § 122(18) with exclusive forum and arbitration provisions that do not select the courts of this State to adjudicate claims under the contracts.” The legislature reaffirmed that intent in the synopsis for the 2025 amendment to § 115, writing “[§] 115 [is] not intended to prevent . . . the selection of a forum other than a court in this State, if the provision is included in a stockholder agreement or other writing signed by the stockholder against whom the provision is to be enforced.”
Fenwick’s summary takeaways are:
– Section 122(18) will be construed broadly
– Substance over label controls
– A company’s own characterizations can later be used against it
They suggest that companies be careful how they characterize agreements “that touch on governance or control rights,” lest those characterizations later come up in litigation.
As this Cleary blog indicates, the European Commission recently published its report documenting the results of its first review of the Foreign Subsidies Regulation (FSR) for its first three years, and the EC Staff also published a Working Document detailing the feedback received on the FSR Guidelines published in January and how that feedback was taken into account. The EC’s FSR introduced a new and supplemental merger review regime requiring approval for transactions involving companies that have received financial support from non-EU governments. Here are some stats from the report highlighted by the Cleary team:
The FSR has caught far more transactions than anticipated (averaging 100 per year) while the intervention rate is extremely low: 99% of mergers were cleared without an in-depth review.
In 20% of these cases, the filings did not report any foreign financial contributions (FFCs) as these all fell within the reporting exemptions.
Given this data, the blog says:
In response, the Commission will propose targeted changes to streamline the regime. These include higher notification thresholds for merger filings and a simpler filing form for public tenders. The Commission will publish its detailed proposals in the fall and intends to adopt them in 2027.
The Commission is considering changes that would (a) reduce the overall number of notifications and (b) further streamline filing requirements. These include:
– Raising the turnover notification threshold, reportedly to €600 million;[3]
– Introducing a simplified process for low-risk mergers or FFCs;
– Increasing the thresholds for reportable FFCs in the merger filing (currently €1 million for individual FFCs and €45 million by country); and
– Introducing new exemptions for reportable FFCs in the filing.
For more background on the FSR regime, see these Mayer Brown FAQs.