18 Key Issues In Negotiating M&A Agreements For Tech Firms
Forbes presents the main considerations when negotiating the acquisition (or sale) of a privately held tech company – from price to representations and warranties around the issue of Intellectual Property infringement.
Richard D. Harroch, David A. Lipkin, and Richard V. Smith have put together an excellent and detailed, three page report covering
1. Price/Consideration Issues
The price and type of consideration are issues that will need to be addressed early in the process, preferably in the letter of intent, and these go beyond agreeing on the “headline” price. Here are some of these issues….
2. Escrow/Holdback Issues
Or the money that is held as ” security” in an escrow account pending the happening (or absence) of certain contingencies.
3. Representations and Warranties of the Seller
Sellers provide various assurances, in writing, to remove or mitigate risk for the buyer. These can cover everything from guarantees on the accuracy of financial statements and ownership of assets to warranties on employee related issues, legal compliance and operational matters.
10. Pre-closing Covenants of the Seller
The acquisition agreement for a privately held technology company will also include a series of covenants applicable between signing and closing, except in the rare case where a transaction can be closed immediately after signing. Some of these are affirmative in nature (the seller is required to take the identified actions), but most of them are negative in nature (prohibitions on…)
11. Covenants of the Buyer
Buyers typically undertake to complete the transaction swiftly and ensure regulatory approvals, filings etc., are done promptly post-sale. They also provide assurances on protecting existing company officials under existing agreements, investing any capital they’ve promised to further develop the business and to maintain confidentiality of the transaction and terms of the agreement.
12. Employee and Benefits Issues
Where there are incentive plans for employees that involve company shares / stock, buyers would need to guarantee certain protection of employee benefits not to mention deal with the issue of unvested shares, carve outs, share dilution…
13. Conditions to the Closing
For any delays between signing the agreement and closing …
the acquisition agreement will need to set forth the conditions to closing, both with respect to the buyer and the seller. Some of these conditions are parallel (such as the need for antitrust or regulatory approval), but most of them are unique to one party or the other. The most common closing conditions that run in favor of the buyer include the following…
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