The Committee on Foreign Investment in the United States recently delivered its 2024 Annual Report to Congress. This Fried Frank memo reviews the report. Here are some of the highlights:
– While CFIUS remained busy in 2024, the 325 total filings it reviewed was below the level of prior years. This slowdown likely reflects the overall pace of deal-making in 2024.
– The CFIUS process was more efficient again in 2024, with decreases (or no change) in both the number and percentage of notices proceeding to investigation, declarations that required a subsequent notice filing, and withdrawn notices. However, CFIUS was still responsible for scuttling four deals in 2024.
– CFIUS remained very active in enforcement and monitoring in 2024. It requested filings for 12 non-notified transactions, imposed four penalties for violations of mitigation agreements or CFIUS regulations, and issued additional notices of noncompliance for failure to make mandatory filings. The President also blocked two transactions that CFIUS reviewed in 2024.
The memo notes that the report indicates that China was once again the largest filing country, but that the number of notices filed by Chinese acquirers was still below 2022 and 2023 levels. The memo says that the decline in the number of notices filed by Chinese buyers is “likely a product of the perceived hostile CFIUS environment and particularly strict scrutiny by CFIUS of inbound Chinese investment.”
The SEC’s Division of Corporation Finance threw a bit of a monkey wrench into this year’s proxy season when it issued new and revised CDIs that narrowed the scope of investor engagements that could be undertaken without investors risking their eligibility to use Schedule 13G. Many investors responded to Corp Fin’s guidance by either pausing engagements with the companies in which they invest or by adopting a more conservative approach to those engagements, and it’s fair to say that their approach is continuing to evolve.
A recent article by H/Advisors Abernathy offers some suggestions for boards and management teams on how to respond to this evolving environment. Here are some of the firm’s recommendations:
– Use offseason to deepen or refresh investor understanding of governance, valuation and growth strategies. Engaging with investors now can help uncover concerns about corporate governance and other matters ahead of the next proxy season and enable companies to incorporate feedback from conversations into their proxy statement and related disclosures. These conversations also can serve to strengthen relationships with investors and build trust, which can be critical to garnering support in the event of an activist campaign. Additionally, regular investor engagement in the offseason helps you stay on top of new vulnerabilities and concerns and mitigate risks in advance.
– Review and enhance the proxy. A company’s proxy statement continues to be the most effective tool to communicate with investors. Conduct a thorough review of the disclosure in light of changing engagement regulations to ensure the proxy can truly stand on its own as an annual investor narrative vehicle. Elevate the content to contain bigger picture themes, as the upfront letter, director descriptions and compensation sections will carry greater weight in this environment. The aesthetic matters too, and a refreshed proxy design can help bring the story to life.
– Build an owned, outbound communications pipeline. In an era where issuers may not be able to rely on learnings from engagement with investors, it is even more important for companies to execute an investor-focused campaign of outbound communications. Build your IR website into an investor-focused news hub, with “owned” content and news flow designed to help manage investor perception and control your narrative. Execute a more assertive, yet disciplined, campaign of media interviews, appearances and coverage to amplify your company’s results, track record and differentiators.
The article also recommends developing a customized digital content strategy to help reach investors quickly and identifying – and appropriately preparing – members of the board who are effective communicators to respond to particularly difficult situations.
– Activists have won 86 board seats in US companies during the first half of 2025, an increase of 16% over the same period in 2024, primarily due to an increase in settlements (37 in H1 2025 v. 28 in H1 2024). Almost half of the settlements during H1 2025 came through private negotiations without a prior public campaign announcement.
– Proxy fights have proven more successful for activists so far this year than they were last year. Activists won seats in four of the eight U.S. proxy contests that went to a vote in H1 2025, winning 38% of the seats they sought. In the prior comparable period, activists won seats in 23% of proxy contests and gained 15% of the seats they sought.
– During H1 2025, ISS and Glass Lewis supported 69% and 85%, respectively, of dissident nominees. Last year, ISS and Glass Lewise supported 29% and 37%, respectively, of dissident nominees. ISS-backed candidates ISS won 56% of the time this year vs. 50% of the time during the prior period. Glass Lewis-backed candidates won 50% of the time this year and 40% of the time last year.
– The most popular activist objectives were board change (43% of global campaigns), M&A (33%) and strategy & operations campaigns (25%). Reflecting the more challenging M&A environment, demands for M&A were well below their 45% four-year average.
– The lines between activists and sponsors continue to blur as activists partner with PE sponsors to catalyze sales and PE sponsors increasingly engaging in activist tactics.
The report cites KKR’s “white squire” investment in Henry Schein as an illustration of its point about the blurring of lines between sponsors and activists.
It seems the days of RWI being limited to deals of $50 million or more are over. This Woodruff Sawyer blog says that RWI providers are now offering products with features that make sense for smaller deals.
Small deals have always faced a structural mismatch with RWI. The diligence burden, underwriting timelines, and fee structures were designed for complexity and scale. For a $20 million add-on, the traditional RWI process can feel disproportionate, both in terms of cost and time. Insurers are now responding with products that preserve the core value proposition of RWI—risk transfer, deal certainty, and clean exits—while eliminating friction.
It describes two new offerings — MIO Fusion and Blue Chip Aqua — and says that these signal a broader shift in the market for RWI — which is moving toward more options with tiered offerings to align with deal size & complexity and the sophistication of the buyer. In fact, this Horton Group blog says they’ve seen coverage for deals as small as $5 million and premiums for as little as $30,000.
Woodruff Sawyer predicts other innovations in the RWI market, including:
Automated Underwriting: AI-driven platforms that reduce underwriting time from days to hours
Modular Coverage: Buyers select specific reps or risk areas, reducing cost and complexity
Integrated Solutions: RWI bundled with escrow, tax indemnity, or post-closing support
Don’t ignore Vice Chancellor Will’s opinion in Edwards v. GigaAcquistions2, LLC (Del. Ch.; 2025) just because you see right on page one that the claims were dismissed in full for either standing issues, the statue of limitations or being not reasonably conceivable. Give it some time because this Fried Frank briefing says, “Edwards indicates that the court may refuse to toll the statute of limitations for fraud where it perceives that the party who allegedly received false information engaged in a due diligence process that, in the court’s view, was limited.”
In Edwards v. GigaAcquistions2, LLC (July 25, 2025), the Delaware Court of Chancery dismissed a case, at the pleading stage, in which former members of Cloudbreak Health, LLC, a high-performing health care company, claimed that Cloudbreak was fraudulently induced to join in a de-SPAC combination with a group of financially distressed health care companies (the “Portfolio Companies”). The combined company went bankrupt post-closing. Cloudbreak had received oral assurances and management presentations indicating that the Portfolio Companies were financially sound and positioned for success. A few years after the closing, it came to light that the information about the Portfolio Companies’ financial wellbeing, that had been provided by the Portfolio Companies, their financial advisor and the SPAC sponsor, was false. The court dismissed the plaintiffs’ claims on several grounds—most notably, refusing to toll the statute of limitations for fraud, which had lapsed shortly before the suit was filed.
As the briefing notes, when refusing to toll the statute of limitations for fraud, “the court emphasized that Cloudbreak—rather than relying on the oral statements and management presentations provided to it—could have “request[ed] additional information on [the companies’] financial wellbeing.” The court rejected the plaintiffs’ argument that, as the companies were privately held, the information about them was entirely in the defendants’ hands and therefore undiscoverable.”
The “fundamental due diligence dillema” highlighted in the decision — i.e., that due diligence responses are provided by people acting on behalf of your counterparty and requesting additional information may simply mean getting more false information — just underscores the need to view diligence responses with a healthy dose of skepticism and to specifically address any particularly important (or potentially suspect) information in reps and warranties. The alert then provides some practice points on running a strong diligence process, and also this tip for buyers to quickly validate information post-closing:
Post-closing diligence review. We note that, where in the due diligence process a company was portrayed as financially sound, and post-closing the company is failing, a post-closing diligence review should be considered so that possible fraud (or breach of representations and warranties) can be established before expiration of the statute of limitations (or any agreed indemnification period). A post-closing checklist should be maintained to serve as a reminder of important dates and deadlines under law or set forth in the parties’ agreement.
And don’t forget to check out the great resources posted in our “Due Diligence” Practice Area here on DealLawyers.com.
Last week’s Chancery Court decision in Arthur J. Gallagher & Co. v. Agiato (Del. Ch.; 7/25) involved a dispute, not about earnout milestones, but about whether conduct by sellers’ founder (who also acted as sellers’ representative) relieved the buyer from making an earnout payment. The asset purchase agreement provided for a $50 million upfront purchase price with $150 million in possible earnout payments if the newly formed division of the buyer (run by the sellers’ founder) achieved certain Net Commissions and Fee Income thresholds. After initially delivering an earnout statement that excluded certain cash payments buyer felt should not count towards the total, the buyer eventually stipulated in the litigation that the amount of cash generated and received by the new division equaled or exceeded the first earnout threshold. It nonetheless argued that it was excused from paying the earnout because, it alleged:
The founder failed to conduct the business of the new division in accordance with buyer’s business practices, policies, and procedures and failed to manage the division for the long-term benefit of buyer’s shareholders;
The founder failed to comply with his Employment Agreement; and
Certain representations and warranties in the APA were inaccurate.
Vice Chancellor Will was not persuaded that these were conditions precedent to the earnout.
Although “‘[t]here are no particular words that must be used to create a condition precedent,’ a condition precedent must be expressed clearly and unambiguously.” “Parties’ intent to set a condition precedent to performance may be evidenced by such terms as ‘if,’ ‘provided that,’ ‘on condition that,’ or some other phrase that conditions performance” connoting “an intent for a condition rather than a promise.” . . .
None of these provisions bear on whether Gallagher owes the Year 1 earnout. Although Gallagher requests I imply conditions to payment of the earnout, Delaware courts “cannot rewrite contracts or supply omitted provisions.” The APA places no conditions on payment of the earnout once the NCFI threshold is achieved. Because it is undisputed that the NCFI threshold for Year 1 was met, the corresponding earnout payment is past due and owed to the Sellers.
VC Will also determined that she needn’t resolve whether the APA was breached since that was irrelevant to whether the earnout was owed.
Such a breach would provide it with grounds to seek indemnification—not to withhold the earnout. The APA sets out an intricate process for one party to obtain remuneration from another for “breach of, or . . . failure to fulfill, any representation, warranty, agreement, or covenant” in the APA. It describes the process for making a written claim, and sets both a base amount required to seek indemnification and a cap.
The Escrow Agreement facilitates the APA’s indemnification process by ensuring that funds are set aside to compensate Gallagher for a valid indemnification claim. The APA’s earnout provisions omit any reference to indemnification process. The APA also does not condition earnout payments to the Sellers on their fulfillment of the representations and warranties in Section 6. The sole condition to payment of the Year 1 earnout is meeting the NCFI threshold, which has indisputably occurred.
On this issue, VC Will granted the motion for partial judgment by sellers’ representative and ordered the payment of the first earnout amount, with interest.
Last week, the Chancery Court issued a magistrate’s report granting a plaintiff’s request to inspect books and records of The Trade Desk relating to its November 2024 reincorporation from Delaware to Nevada. Trade Desk produced 19 documents and 521 pages in response to the demand, but the plaintiff filed suit claiming that the production was insufficient. Trade Desk argued that the plaintiff lacked a proper purpose, and the parties disagreed on the appropriate scope of the documents to be produced.
With respect to whether plaintiff presented a proper purpose, Trade Desk claimed that Plaintiff was attempting to use the Delaware Supreme Court’s TripAdvisor decision to argue that “reincorporation presumptively established a credible basis for wrongdoing.” The court thought this was a “minimization” of TripAdvisor’s application.
This Court is tasked at the books and records stage to determine whether the Plaintiff has “a credible basis from which this Court may infer possible mismanagement, waste, or wrongdoing may have occurred.” The footnote Plaintiff cites to in TripAdvisor explains that the Supreme Court of Delaware applied the business judgment rule because there “the record [] suggest[ed] the existence of a clear day and the absence of any material, non-ratable benefits flowing to the controller or directors as a result of the Conversions” but indicates that this conclusion may have been different had the Defendants “taken any articulable, material steps in connection with any postconversion transaction” in furtherance of breaching their fiduciary duties.
The court pointed to circumstances surrounding Trade Desk’s decision to reincorporate and found they were sufficient to warrant further investigation. Trade Desk has a dual class capital structure with one class of super voting common. Its charter provided that each share of supervoting Class B shares would convert into Class A shares once the Class B represented less than 10% of the total shares outstanding. The Class B shares were approaching 10% in 2020, and the board had negotiated an MFW-structured transaction to delay that trigger and maintain the dual class common until certain events or December 22, 2025. Earlier this month and just before trial, Trade Desk filed a preliminary proxy for a special meeting to approve extending the date that the Class B stock will convert to Class A.
Here, considering Trade Desk’s prior decisions to delay the dilution trigger, the most recent proxy proposing the removal of the sunset provision filed soon after their reincorporation to Nevada, and the benefit flowing to Mr. Green as primary owner of Class B stock, it is reasonable to have concern that the decision to reincorporate was not made on a clear day. The evidence does not need to ultimately be enough to succeed in the underlying claim, it only need be sufficient to meet the credible basis standard, and here I find it does.
The court also agreed that plaintiff was entitled to board materials relating to Class B ownership and the sunsetting of the dual-class structure. It pointed to the fact that the proper purpose was not to investigate the reincorporation alone but whether the reincorporation was partly to perpetuate one shareholder’s control.
The latest Weil Private Equity Sponsor Sync focuses on take-private transactions. One article includes year-to-date comparisons of key deal terms from sponsor-backed take-private deals announced in 2024 to those announced in 2025 (through May 2025). Here are some differences they identified in deal terms across the two time periods that may indicate where market dynamics are evolving.
Club deals accounted for 29% of sponsor-backed take privates in 2024, reflecting a willingness among sponsors to partner on large transactions and driven in part by the resurgence of the so-called “mega deals” (deals of at least $1 billion). By contrast, we have only observed one club deal so far in 2025, suggesting a possible shift toward single-sponsor funded transactions (and perhaps smaller transactions), though the trend may normalize as the year progresses.
In 2024, the “specific performance lite” construct (allowing the target to compel sponsor’s equity financing only if buyer’s debt financing is available) reemerged as the preferred market remedy to address an acquirer’s financing failure and a target’s closing risk in sponsor-backed going private transactions, due in part to the increase in debt-financed transactions. Among 2024 deals, 28% provided for full specific performance (whereby the target can force a closing upon satisfaction or waiver of the applicable closing conditions, regardless of whether an acquirer’s debt financing is available) while 71% contemplated specific performance lite . . . the prevalence of specific performance lite over full specific performance has continued in 2025 – with 11% of deals contemplating full specific performance and 78% using specific performance lite. This seems to indicate a continued, and perhaps growing, ability of sponsors to limit financing risk.
The average reverse termination fee (“RTF”) as a percentage of enterprise value and equity value in 2024 was 5.1% and 7.1%, respectively. For 2025 deals, those averages significantly declined to 4.3% and 6.5%, respectively. The mean RTF of 4.3% of target enterprise value is much lower than expected, and moreover, much lower than the mean amounts observed over the past few years (since 2018, the mean RTF as a percentage of enterprise value has been between 5 and 6% except in 2021 where it exceeded 6%). While these changes may normalize as the year progresses, they may reflect slightly more sponsor-favorable risk allocations or changes in deal leverage.
Go-shop provisions appeared in 20% of 2024 deals and 22% of 2025 deals. The negligible increase suggests continued selectivity in their use, which is typically tied to the target’s process . . . the use of go-shop provisions in take private transactions generally fluctuates over time due to the fact specific nature of whether a target company’s board feels compelled to include a go-shop provision, which is often driven by the extent to which the company has engaged in a pre-signing market check.
I think most lawyers are well-acquainted with the potential perils of a letter of intent, term sheet or other preliminary transaction document being regarded as binding in one or more respects. However, what’s probably not on most people’s radar screens – or at least not on mine – is the possibility that such a document may have an “afterlife” such that it is binding even after the parties have executed a definitive acquisition agreement. However, this Mayer Brown memo says that in some cases, term sheets and similar documents may in fact have that result:
In most cases, a term sheet serves a limited purpose and is replaced by a definitive agreement (or set of agreements) that incorporates the full set of deal terms. With a definitive agreement in place, parties may believe that the binding provisions of the term sheet are no longer in force. However, under Delaware Law, a definitive agreement does not supersede the binding provisions of a term sheet unless one of the following is true:
– The provisions of the definitive agreement contradict the binding provisions of the term sheet, in which case the term sheet will be superseded only to the extent of those contradictions.
– The parties expressly agree that the term sheet is no longer binding. Often, a definitive agreement will accomplish this by including an integration clause (sometimes referred to as a “merger” or “entire agreement” clause). A standard integration clause states that the definitive agreement supersedes all other agreements between the parties with respect to its subject matter. An integration clause creates a presumption that there are no additional terms outside of the agreement (including a term sheet) that will change the terms of the agreement.
However, like any other contractual provision, integration clauses are interpreted according to their plain meaning, and the presumption of integration may be rebutted with evidence (including contractual terms and the parties’ course of dealing) that show an intention for the term sheet to remain in force alongside the definitive agreement
The memo reviews several Delaware decisions in which obligations imposed by term sheets have survived the execution of a definitive agreement and identifies several factors which may contribute to a conclusion that those provisions survive.
These include situations where the purpose or subject matter of the term sheet differ from those of the definitive agreement, where the term sheet includes provisions not addressed in the definitive agreement, and where the parties to the term sheet differ from the parties to the definitive agreement. The memo also points out the role that the parties’ course of dealing may play in a court deciding that the term sheet survives the signing of the definitive agreement.
Earlier this week, in Wong Leung Revocable Trust v. Amazon.com, (Del. 7/25), the Delaware Supreme Court overruled a prior Chancery Court decision dismissing a stockholder’s Section 220 action against Amazon. This excerpt from a recent Business Law Prof Blog post on the case summarizes the Court’s decision:
A stockholder sent a letter to Amazon, demanding to inspect books and records under Delaware’s Section 220. The stockholder’s stated purpose was to investigate Amazon’s possible wrongdoing and mismanagement by engaging in anticompetitive activities.
The request kicked of an extended legal battle. A Magistrate conducted a one-day trial that led to a report siding with Amazon that the the stockholder had not alleged a “credible basis” to infer possible wrongdoing by Amazon. The stockholder took exception. A Vice Chancellor also sided with Amazon, but on a different basis–finding that the stockholder’s purposes was overbroad, “facially improper,” and not lucid. The stockholder appealed and the Delaware Supreme Court reversed.
Under Delaware law, investigating corporate wrongdoing is a legitimate purpose, but stockholders must present “some evidence to suggest a credible basis from which a court can infer that mismanagement, waste or wrongdoing may have occurred.” The Supreme Court found that the Vice Chancellor had erred in its interpretation of the scope of the stockholder’s purpose and should have engaged “with the evidence presented by the [stockholder].”
On the evidentiary front, the stockholder pointed to a history of investigations, lawsuits, fines, and one Federal Trade Commission action against Amazon that survived a motion to dismiss. The Delaware Supreme Court stressed that the credible basis standard is the “lowest possible burden of proof under Delaware law.” It requires more than a “mere untested allegation of wrongdoing but does not require that the underlying litigation result in a full victory on the merits against the company.” Collectively, these predicates sufficed to “establish a credible basis from which a court can infer that Amazon has engaged in possible wrongdoing through its purported anticompetitive activities.” Now the matter heads back to Chancery to “determine the scope and conditions of production.”
The blog points out that if Amazon was incorporated in Nevada, this case would’ve turned out differently. In fact, my guess is that the lawsuit never would’ve been filed in the first place. That’s because under Nevada’s statute (which I think we all may need to start getting more familiar with), stockholders in a public company don’t have inspection rights.