Drafting Private Company Target Merger Agreements: Risk Allocation, Reps and Warranties, and Maximizing Indemnification Recourse

Description

When a private company target is acquired by a private or public company through a merger structure, the buyer will typically bind the target to numerous post-closing risk allocation terms, including representations and warranties, post-closing adjustments, and indemnification for breaches of representations, warranties and covenants. Deal counsel drafting the agreements must understand how to negotiate these terms in a manner that is most beneficial to their client’s position.

The enforcement of risk allocation provisions and other obligations against nonsignatory equityholders of the private company target is complicated. Until the seminal 2014 case, Cigna v. Audax, buyers’ counsel often relied on the letter of transmittal, an ancillary agreement signed by equityholders in connection with a merger, as an avenue for committing equityholders to post-closing risk allocation terms. However, the Delaware Court of Chancery declared this practice unenforcable in Cigna. Post-Cigna, deal counsel for buyers can increase the likelihood of binding the target’s nonsignatory equityholders to post-closing risk allocation terms and other obligations through a number of strategic actions.

Listen as our authoritative panel examines the challenges and complexities of drafting private company target merger agreements and ancillary agreements, including the issues surrounding whether nonsignatory shareholders can be bound by the agreements. The panel will review recent case law and discuss considerations and best practices when negotiating merger transactions involving private company targets.