Historically, Acquisition Companies chose to list on the Nasdaq Capital Market instead of the Nasdaq Global Market, in part, because it had lower fees and lower initial distribution requirements. More recently, certain Acquisition Companies have sought to list on the Nasdaq Global Market.
In particular, Nasdaq notes an SEC statement about accounting treatment by Acquisition Companies and subsequent and more recent accounting comments to Acquisition Companies have resulted in some Acquisition Companies adopting different accounting practices and, as a result, having insufficient equity to qualify for initial listing on the Nasdaq Capital Market. Based on Nasdaq’s experience listing Acquisition Companies on the Global and Capital Market tiers, Nasdaq proposes to modify Listing Rules 5405 and 5505 to increase the listing requirements for Acquisition Companies.
The notice also says that acquisition companies generally use the “Market Value” standards for those markets — that is the Market Value Standard for the Global Market (because the redeemable shares issued in the IPO means insufficient stockholders’ equity for the other standards) or the Market Value of Listed Securities Standard for the Capital Market (because they don’t meet the operating history and net income from continuing operations requirements of the other standards). With that in mind, Nasdaq is:
– Modifying Listing Rule 5405(b)(3)(A) to increase the minimum Market Value of Listed Securities that an Acquisition Company must have to at least $100 million for the Nasdaq Global Market; and
– Modifying the Market Value of Listed Securities Standard to exclude an Acquisition Company from being able to list under that rule, amending Listing Rule 5505(a)(3) to require that an Acquisition Company listing on the Capital Market must have a minimum of 400 public shareholders and adopting new requirements for Acquisition Companies listing on the Capital Market in Listing Rule 5505(b)(4), which will require:
Market Value of Listed Securities of $75 million (current publicly traded Companies must meet this requirement and the $4 bid price requirement for 90 consecutive trading days prior to applying for listing if qualifying to list only under the Market Value Standard);
Market Value of Unrestricted Publicly Held Shares of at least $20 million (for a Company listing in connection with an initial public offering, including through the issuance of American Depository Receipts, this requirement must be satisfied from the offering proceeds); and
At least four registered and active Market Makers.
In support of these amendments, Nasdaq points out:
This increased Market Value of Listed Securities requirement for the listing of an Acquisition Company on the Global Market is the same as the current Market Value of Listed Securities requirement under the Alternative Initial Listing Requirements for Acquisition Companies listing pursuant to Listing Rule 5406 on the Nasdaq Global Market. This proposal is also consistent with the approach of the NYSE. However, unlike Acquisition Companies listing under Rule 5406 or the NYSE requirements, which can list with 300 shareholders, an Acquisition Company listing under Rule 5405(b)(3)(A) would continue to be required to have 400 shareholders [. . .]
These new requirements for listing of an Acquisition Company on the Capital Market are substantially similar to the current requirements for listing of an Acquisition Company on the Nasdaq Global Market. This proposal is also consistent with the requirements of NYSE American.
Thanks to all the law firm memos rolling in – and posted in our “Tender Offers” Practice Area – I’ve read a lot of really smart people’s thoughts about what the SEC Staff’s new exemptive order will mean for transaction planning, timing and structure. Here are some insights some of these memos share (headings added):
New Timelines. We expect the norm for acquisitions that utilize a minimum 10-day offering period to involve the parties taking approximately two weeks after the signing of the merger agreement to prepare the tender offer documents and make regulatory filings under the [HSR Act], followed by the offering period. This results in a sign-to-close period of approximately four weeks.
In this scenario, the acquisition can be completed roughly two weeks sooner than a “traditional” tender offer done with a minimum 20-business day offering period. A sign-to-close timeline as short as approximately two-and-a-half to three weeks may be possible if the parties are motivated and well organized, prepare their tender offer documents concurrently with the merger agreement, commence the tender offer and make regulatory filings a day or two following the signing of the merger agreement and do not encounter any regulatory delays [. . .] A shortened offering period provides a significant new tool for structuring friendly M&A transactions for public companies, especially in deals with limited regulatory considerations.
Go-Shop Periods. A target company may be hesitant to shorten the time during which its board of directors can receive and consider unsolicited (or “topping”) proposals, especially if the company did not engage in a market check prior to signing, or the market check was limited. Additionally, a shortened offering period may have to be sequenced with any “go-shop” period provided for in the merger agreement to ensure that the target company gets the full benefit of its opportunity to solicit a transaction.
Two-Step Mergers. A 10-business day offer period increases the attractiveness of a merger transaction structured as a two-step merger because the front-end tender offer can now be conducted far more quickly, which may accelerate the timing of the second-step merger and deal closure.
Complex/Retail Deals. However, because there will only be half the time to solicit shareholders to tender their shares, the benefits of the 10-business day offer period may be offset to some extent for more complex deals or deals in which there is a significant retail shareholder base.
Regulatory Approvals. [T]here will still be practical considerations that may limit how often the relief will be used. For example, the two-step tender offer structure has generally only been used when the parties believe that antitrust and any other regulatory approvals can be obtained during the same time period as the tender offer, allowing for a speedier closing than when parties are soliciting proxies for a shareholder vote.
Given the waiting period for approval under the [HSR Act] in cash tender offers is 15-calendar days, the 10-business day tender offer will allow for a meaningful increase in speed to closing for transactions where HSR Act approval is likely to be received within that 15-calendar day period. However, when regulatory approvals are likely to take longer than the time it takes to obtain approval via a shareholder vote, transacting parties still may prefer to use one-step mergers in order to more quickly mitigate and end the risk of an interloper’s challenge.
Assess eligibility early. Companies and their advisors should evaluate early whether a contemplated tender offer can satisfy all of the Order’s conditions. The all-cash, fixed-price requirement and the exclusion of going-private transactions, cross-border offers, and contested situations will mean that many, but by no means all, tender offers can take advantage of the shortened minimum offering period. For “plain vanilla” third-party or issuer tender offers, structuring the transaction from the outset to take advantage of the shortened minimum offering period may provide meaningful strategic benefits.
Closely monitor deadlines to communicate changes. The compressed timeline makes the change-communication windows especially tight. In a 10-business day tender offer, a change in consideration would need to be announced by the morning of the fifth business day of the offer. Parties should plan offer terms with this constraint in mind as significant changes later in the offer period would require an extension.
In late March, when I blogged about Fortis Advisors LLC v. Krafton, Inc. (Del. Ch.; 3/26), I focused on the reasons the Chancery Court decided to extend the earnout window. I briefly noted that the Court’s factual findings significantly relied on a conversation between the buyer’s CEO and a chatbot, and this Mayer Brown alert expands on that aspect of the decision. The alert explains the related facts as follows:
After the Buyer’s own legal team warned him that a for-cause termination would not eliminate the earnout obligation and would expose the Buyer to legal and reputational risk, the CEO turned to an AI chatbot for help. When the chatbot told him the earnout would be “difficult to cancel,” the CEO complained to colleagues that the EPA was “a contract under which we can only be dragged around.” At the chatbot’s suggestion, the CEO formed an internal task force dubbed “Project X,” whose mandate was to either renegotiate the earnout or execute a full “takeover” of the Target. The AI chatbot furnished the CEO with a detailed “Response Strategy to a No-Deal’ Scenario,” which included a “pressure and leverage package,” strategic talking points for negotiating with the Key Employees, instructions to lock down the Target’s publishing platform and control publishing rights, directions to prepare systematic materials for legal defense, and a “two handed strategy” combining hardball legal and financial pressure with softer retention incentives. The CEO admitted at trial that he had deleted certain of the relevant logs from the AI platform.
The Buyer followed most of the chatbot’s recommendations. It locked the Target out of the publishing platform, effectively severing the studio’s ability to release Subnautica 2. It posted a message on the websites of the Target and Subnautica, which was drafted overnight and without the studio’s involvement, falsely claiming that the founders were considering an invitation from the Buyer to reengage with the project. When negotiations over the earnout stalled in late June 2025, the Buyer determined to execute its takeover strategy. On July 1, 2025, the Buyer sent termination letters to the Key Employees, citing a single ground for dismissal: their intention to proceed with a premature release of Subnautica 2. The Buyer simultaneously removed the Key Employees from the Target’s board, replacing them with Buyer representatives, and installed a part-time replacement CEO for the Target who had never played a Subnautica game and had no experience overseeing early access title development.
The chats were very instructive to the Court as evidence of the buyer’s intent — and that buyer’s proferred reasons for terminating the target’s founders were pretextual.
Perhaps the most striking feature of the opinion is that the court quoted at length from the Buyer CEO’s conversations with the AI chatbot and expressly relied on those exchanges to establish the pretextual nature of the Buyer’s conduct. The chatbot’s recommendations were treated as a window into the Buyer’s strategic intent. The court also noted that the Buyer’s CEO admitted at trial to deleting specific, relevant logs from the AI platform—a fact that may factor prominently in the second phase of the litigation, where money damages and potential earnout impairment are at issue.
The opinion does not establish new legal standards governing AI use, but it does carry a clear warning: communications with AI platforms may not be privileged, may be subject to discovery, and may be used against the party that generated them. Deleting them may compound the problem. Acquirers using AI tools for post-closing strategy or any deal-related purpose should treat those communications with the same discipline they would apply to other non-privileged communications, including applying an appropriate retention policy.
Over on the D&O Diary, Sarah Abrams wrote about the Delaware Superior Court’s decision in View v. Starstone(Del. Superior; 3/26), finding that the “public offering” exclusion of the de-SPACs D&O policy did not preclude coverage for claims arising out of the de‑SPAC transaction and that additional payment conditions could not be imposed unless expressly stated in the policy. Sarah calls the underlying facts “a now-familiar de-SPAC trajectory.” That is, the resulting entity faced an audit committee investigation, an SEC investigation, a securities class action and derivative litigation — all related to alleged misstatements during the transaction.
View then sought coverage under its D&O program for defense and settlement costs arising from these proceedings. While most insurers participated, one carrier denied coverage, relying primarily on a “public offering” exclusion and separately arguing that it had no payment obligation until defense costs were actually paid. [. . .] The insurer contended that the de-SPAC transaction functioned as a public offering of View’s securities, even if structured through the SPAC parent.
That “substance over form” argument didn’t sway the court.
The Delaware Superior Court rejected the insurer’s coverage position and granted summary judgment in favor of View on the core issues, emphasizing that policy language must be applied as written and exclusions construed narrowly under Delaware law. The court held that the “public offering” exclusion applies only where there is an offering of the insured entity’s own equity securities. Because the transaction involved shares issued by the SPAC parent, not View, the exclusion did not apply.
Yesterday, the SEC’s Office of Mergers and Acquisitions issued an exemptive order providing issuers and, in some cases, third-party bidders with the flexibility to shorten the time period during which tender offers for equity securities must be open from 20 to 10 business days. In order to take advantage of the shorter tender offer period, the tender offer must satisfy several conditions, which vary depending on whether the target is a reporting or a non-reporting company.
Some of the more prominent conditions applicable to a tender offer for equity securities of an Exchange Act reporting company include, among others:
– The tender offer must be subject to Regulation 14D or Rule 13e-4 under the Exchange Act;
– If the tender offer is subject to Regulation 14D, (i) the offer is made pursuant to the terms of a negotiated merger agreement or similar business combination agreement between the subject company and the offeror, (ii) the offer is made for all outstanding securities of the subject class, and (iii) a Schedule 14D-9 is filed and disseminated by the subject company no later than 5:30 p.m., Eastern time, on the first business day following the date of commencement of the tender offer:
– If the tender offer is subject to Rule 13e-4, the offer is made for less than all outstanding securities of the subject class; and
– The consideration offered in the tender offer consists only of cash at a fixed price.
Certain conditions relating to the contents and dissemination of communications announcing the tender offer and any changes in its key terms must also be satisfied.
Cross-border tender offers, tender offers in connection with Rule 13e-3 transactions, and tender offers for which a competing tender offer has already been announced are ineligible to take advantage of the shortened tender period. In addition, if a competing tender offer is publicly announced, then the tender offer made in reliance on the exemptive order must be extended such that it is open for at least 20 business days from the date the initial offer commenced.
In the case of tender offers for securities of non-reporting companies, only all cash, fixed price issuer tender offers (or tender offers by wholly owned subsidiaries for the issuer’s securities) are eligible for the shortened tender offer period. Certain conditions relating to the contents and dissemination of communications announcing the tender offer and any changes in its key terms must also be satisfied.
Corp Fin Director Jim Moloney touched on this during his conversation with WilmerHale’s Lily Brown and Skadden’s Brian Breheny during the ABA Business Law Section’s “Dialogue with the Director” last Friday. He pointed out that the Staff has previously granted exemptive orders and no-action letters for certain types of tender offers with abbreviated offering periods with no major issues. Jim invited practitioners to share any issues they may experience with the shortened period for equity tender offers, especially since the Staff has delegated authority in this area with more flexibility to make changes if feedback warrants. They also noted that some of the requirements of this latest exemptive order are less onerous than the requirements for debt tender offers – for example, this exemptive order doesn’t require an 8-K to commence the tender offer since the Staff decided it wasn’t necessary.
On Monday, in a post-trial memorandum opinion in Chertok v. OnSolve (Del. Ch.; 4/26), the Chancery Court found that a company impermissibly conditioned payment of merger consideration on the plaintiff stockholder executing ancillary documents that contained a release of claims. The merger agreement provided that the buyer “shall not pay any amounts” of the merger consideration to eligible stockholders “unless and until” they delivered stock certificates, an executed joinder, indemnification and release agreement, a letter of transmittal and Form W-9. The joinder, indemnification and release agreement was an annex to the merger agreement.
Plaintiff stockholder demanded appraisal, withdrew, declined to sign the joinder agreement and then, three years after closing, sent a letter asserting he was owed merger consideration and unpaid dividends. The company’s certificate of incorporation included the provisions of Section 262 of the DGCL. In Mehta v. Smurfit-Stone Container Corp. (Del. Ch.; 10/14), the Chancery Court read Section 262 as requiring stockholders who demand appraisal to receive merger consideration when no appraisal petition is timely filed and found that the defendant impermissibly conditioned the withdrawal of the stockholders’ appraisal demand (and payment of their merger consideration) on the stockholders signing a settlement agreement. So now, in OnSolve, the court concluded:
Under Section 262(e) of the DGCL, which is incorporated into the Certificate, OnSolve was obligated to pay the Merger consideration to Chertok after he timely withdrew the appraisal demand. But OnSolve insisted that a stockholder could not receive the Merger consideration unless the stockholder provided all of the Required Deliveries, including the Joinder Agreement. OnSolve earlier conceded, for purposes of the motion to dismiss, that Plaintiffs were justified in refusing to sign the Joinder Agreement as a condition to receive the Merger consideration, because “that release would lack consideration.” The court agreed and held that Plaintiffs had stated a claim for breach of contract by conditioning receipt of the Merger consideration on their returning an executed Joinder Agreement.
At trial, Defendant did not alter its position from the motion to dismiss stage. Rather, OnSolve conceded that it could not compel Chertok to execute the Joinder Agreement as a condition to payment of the Merger consideration. Accordingly, the court concludes that OnSolve’s conditioning payment of the Merger consideration upon Chertok’s returning an executed Joinder Agreement breached the Certificate.
I’m also going to point you to some footnotes now, and I’m not quite sure what to make of them.
– In footnote 84, defendant’s concession cited Cigna v. Audax Health (Del. Ch.; 11/14), in which the court held that the requirement to execute a release to receive consideration was unenforceable because it was not included in the merger agreement and not supported by separate consideration, and which somewhat changed the old approach of throwing releases and joinder language into letters of transmittal.
– And footnote 81, citing defendant’s brief, says “Solely for purposes of this motion, OnSolve allows that Plaintiffs could point to [Cigna] to justify their refusal to execute the Joinder Agreement, which contains a release.”
The court doesn’t otherwise touch Cigna in this decision. But note that the release was part of the joinder annexed to the merger agreement and included in the agreement as a condition of payment – very different than Cigna, where the release was not mentioned in the merger agreement at all. (And somewhat akin to the facts in Jhaveri v. K1 Investment Management LLC, (Del. Ch.; 6/25), which the Chancery Court distinguished from Cigna in footnote 86.) That said, the plaintiff’s appraisal demand was withdrawn post-closing, at which point, when the release was being sought, it’s hard to argue that it was a material inducement to the buyer closing the deal. Maybe I’m reading too much into these footnotes…
Plaintiff also argued that he was entitled to receive the merger consideration without any deductions for bonuses to management or incurred expenses, but the court didn’t buy that argument.
As Defendant indicated, if Plaintiffs’ contention were accepted, “no deal [would] ever happen because . . . anyone who is smart, [] would [] dissent, submit an appraisal and then withdraw it, . . . [to] get a better deal.” That is incompatible with the Merger deal structure and Delaware law.
The court determined the plaintiff was entitled to the merger consideration and dividends, plus prejudgment interest, but not to any other amounts beyond the merger consideration.
In a recent CLS Blue Sky Blog, Baker McKenzie’s Pete Korzynski argues that M&A practitioners may want to ignore the DExit debate when it comes to the choice of governing law for an acquisition agreement. He says that, while recent outcomes pushed some companies to consider other jurisdictions for governing their internal affairs, the choice of governing law for an acquisition agreement primarily concerns the target’s “’external affairs,’ specifically, its relationship to an acquirer.”
That choice implicates two other choices. First, if a dispute arises between the target corporation and the acquirer, what background rules will apply to interpreting the agreement terms? Second, who will apply those rules to resolve that dispute?
While the law of the state of incorporation will govern many parts of the acquisition process, including approval requirements, Delaware may still have a leg up on other jurisdictions, even for Nevada or Texas-incorporated targets.
Parties typically seek predictability and enforceability, and by contrast with states like Nevada and Texas, Delaware has a well-developed jurisprudence – and well-established merger-agreement terms based on that jurisprudence – for (i) managing the target corporation directors’ fiduciary duties and (ii) determining whether a target corporation has suffered a “material adverse effect,” the absence of which is a market-standard condition to an acquirer’s obligation to close a U.S. public company transaction. Equally important, Delaware judges are experienced in handling disputes over sophisticated transactions quickly and strictly in accordance with the parties’ agreement and well-established case law.
He acknowledges that this is all quite complicated:
Given how intertwined corporate internal and external affairs are in a merger, layering Delaware law and courts over Nevada or Texas corporate law is potentially complex. Target corporation stockholders, for example, may bring claims under the corporate law of the target’s state of incorporation with respect to breaches of fiduciary duties related to the transaction ,while the target corporation and acquirer may dispute contract terms in Delaware under Delaware law. Some parties opt for a compromise, especially in an international cross-border transaction. They expressly split the merger agreement governing law and, potentially, forums, providing the state of incorporation for internal affairs and Delaware for all other matters. In making that compromise, parties often seek to retain Delaware law specifically for its developed jurisprudence on “material adverse effects” while focusing disputes related to internal affairs in one jurisdiction.
But he still concludes that other states are simply behind when it comes to developing jurisprudence on fiduciary outs and no-shops and material adverse effects and other elements of acquisition agreements “that have similarly received extensive treatment under Delaware law by Delaware judges,” allowing deal parties to “make informed and enforceable risk allocations through their agreements.”
Gallagher (which recently acquired Woodruff Sawyer) is out with its latest Guide to D&O Insurance for De-SPAC Transactions. In addition to many practical tips for navigating the underwriting process, it suggests some questions you should ask potential brokers before choosing yours.
1. What level of experience does the particular brokerage team you are talking to (not just the brokerage firm, but your particular team) have when it comes to placing D&O coverage for companies going public through a de-SPAC transaction?
It is critical that your D&O insurance broker has extensive and current experience working with companies going public through a de-SPAC transaction. The D&O insurance market for companies going public changes rapidly. Unless your broker is in the market every day, you will miss out on the latest developments in the terms and conditions of your policy, which are critical elements of your negotiated, customized D&O insurance program.
2. What reach does the brokerage team have in the D&O insurance markets?
Ask whether the brokers on your team have extensive and long-term relationships with SPAC D&O and RWI underwriters. Having a broker with years of experience and rapport built into their underwriter relationships can make a significant difference in the terms and pricing of your policies and the speed with which they can be placed.
3. Will the broker be using a wholesaler or making a direct placement?
Many brokers only do a limited amount of public company D&O insurance business, particularly for companies becoming publicly traded for the first time. These brokers may be excellent in other areas but will inevitably have to use a “wholesale” broker to work on your going-public D&O insurance if they do not transact a large volume of this business routinely. That can be a big negative for you, especially if there is a claim, because the person you are talking to will have no relationship with the insurance carrier that will be deciding whether to pay or deny your claim.
4. Can your broker clearly articulate the business and legal risks you face?
There is little chance your D&O or RWI insurance broker will do a good job of ensuring you have insurance coverage for critical risks if your broker cannot clearly articulate them. If your broker is not an expert in understanding the risks you face, you are talking to the wrong person.
5. What experience does your broker have in terms of advocating for coverage payments with carriers on behalf of clients with complex claims?
Many brokers have an anemic claims function at best, and often the same claims person who handles claim auto or workers’ compensation claims is also being asked to handle your difficult D&O insurance or RWI claims. Given the complexity of D&O insurance and RWI claims, this is a mistake. Find out if your broker has specialists who can swing into action on your behalf.
Yesterday, the Chancery Court addressed which forum selection bylaw should apply to derivative actions in the following fact pattern: (1) a company announces a proposal to redomesticate (and adopt a new forum selection bylaw); (2) derivative suits challenging the redomestication are filed in the current state of incorporation, as required by the current forum selection bylaw; and (3) days/hours after filing, company stockholders approve the redomestication and the new forum selection bylaw. (As you may suspect, the company is Tesla and the states are Delaware and Texas.) In In Re Tesla, Inc. Derivative Litigation (Del. Ch.; 4/26), Vice Chancellor David wrote:
Although the plaintiffs advocate for an inflexible rule requiring the Court to assess proper venue based on the facts as they existed when the complaints were filed, courts sometimes look to later points in time when determining venue, such as when the defendant appears or at the time a movant seeks transfer. Courts in other jurisdictions have enforced forum selection bylaws adopted after derivative lawsuits were filed. And the unique facts of this case present a strong case for enforcement, since the Texas forum selection bylaw was publicly announced before these actions were initiated and became effective just days later, before the defendants appeared and any meaningful litigation occurred.
The plaintiffs argue that enforcing the Texas forum selection bylaw would violate two sections of the Delaware General Corporation Law. For reasons explained below, it does not. They also argue that enforcement would be unreasonable or unjust, including because Texas law is less favorable to stockholders. I will not second-guess Tesla stockholders’ chosen forum by purporting to weigh the advantages and disadvantages of Texas law and procedure relative to our own. The owners of the corporation voted to require that derivative litigation be filed in a Texas forum. On the present facts, it is not inequitable to enforce their decision.
As to the claims that enforcing the later adopted bylaw violates Delaware law, the plaintiffs point to Section 266(e), which provides:
The conversion of a corporation out of the State of Delaware in accordance with this section and the resulting cessation of its existence as a corporation of this State pursuant to a certificate of conversion to non-Delaware entity shall not be deemed to affect any obligations or liabilities of the corporation incurred prior to such conversion or the personal liability of any person incurred prior to such conversion, nor shall it be deemed to affect the choice of law applicable to the corporation with respect to matters arising prior to such conversion.
To that, Vice Chancellor David said (citations omitted):
They first contend that enforcing the Texas Forum Bylaw here would impermissibly “affect” Tesla’s “obligation” to litigate the Actions in Delaware as required under the Delaware Forum Bylaw. This argument fails because Plaintiffs never had any vested right or obligation to litigate in a particular forum. “Our corporate law has long rejected the so-called ‘vested rights’ doctrine,” the notion that a corporation’s governing documents cannot be amended in a manner that diminishes or divests pre-existing stockholder rights [. . .]
The Texas Forum Bylaw does not change the choice-of-law analysis; it “merely regulates ‘where stockholders may file suit.’” [. . .] But Plaintiffs say that if Delaware law applies, then under Section 115, Tesla could not adopt a provision in its bylaws that prohibits bringing internal corporate claims in Delaware. This argument also misses the mark. Regardless of what substantive law governs Plaintiffs’ derivative claims, “Section 115 does not apply here” because that statute governs Delaware corporations and Tesla “was not incorporated in Delaware when it adopted the [Texas Forum] Bylaw.”
Plaintiffs also argued that the Texas bylaw is unreasonable or unjust “as applied” and should not be enforced. This also didn’t sway her:
Plaintiffs cannot undermine enforcement of the Texas Forum Bylaw by challenging the Redomestication. A party “cannot escape a valid forum selection clause . . . by arguing that the underlying contract was invalid for a reason unrelated to the forum selection . . . clause itself.” [. . .] Plaintiffs attack the Redomestication, but they do not argue that Tesla’s stockholders were misled about the effect of the Texas Forum Bylaw in requiring derivative litigation to be brought in Texas rather than Delaware courts.
In the latest annual Carve-Out Survey from AURELIUS, approximately 80% of respondents expected an increase in divestitures of non-core businesses in 2026. According to the announcement:
Refocusing on core operations remains the dominant driver of corporate divestment plans for 2026, cited by 73% of respondents (up slightly from 70% last year). Disposing of unattractive non-core assets is again the second-ranked motivator. By contrast, deleveraging has slipped sharply down the agenda: only 5% cite debt reduction this year, versus 9% last year and 52% two years ago. Decisions to divest may be accelerated by global trade tensions, with 72% of respondents feeling rising tariffs and protectionist policies are affecting corporate decisions to divest non-core businesses in 2026.
With that in mind, BakerHostetler recently shared some practical structuring and drafting tips for carve-outs focused on improving deal certainty. For example, the memo discusses considerations for buyers and sellers when including a “wrong pocket” provision.
Because of these complexities and the often-expedited timelines associated with M&A, another way to address the heightened risk of inadvertently excluding – or wrongfully transferring – a certain asset or liability is to include a “wrong pocket” provision within the purchase agreement. This provision requires a party that has misallocated an asset or a liability from within or outside the target to transfer it to the other party post-closing, typically for no additional consideration.
– Buyers will undoubtedly want a broad provision that will allow them to identify any diligence gaps post-closing and retain the benefit of the business they believed they were buying, especially given that they have less visibility into the target business than does the seller prior to closing.
– Sellers, on the other hand, should push to limit the scope to avoid a situation where a buyer is over-reliant on post-closing diligence and looks to cherry-pick assets from all of the seller’s affiliates.
While a wrongpocket provision should be carefully crafted by the parties to ensure it adequately reflects their intent without undue additional risk, these provisions are no substitute for thorough diligence and precise identification of the transaction perimeter.
The memo also discusses tricky issues associated with carve-out financials, TSAs, transferring employees, technology & data, insurance and restrictive covenants.