Navigating the acquisition agreement mind
Negotiating an Acquisition Agreement involves a complex legal process intertwined with critical business decisions. This set of documents and its terms and conditions are surprisingly unique to each deal. Agreements are a tool for allocating risk; the key components include:
- Consideration: structure scope of purchase, price, how/when paid, deferred consideration, earn-outs, contingent payments, employment/consulting agreements and post-closing adjustments.
- Mechanics: conditions to closing, timetable, covenants, third-party and regulatory approvals, schedules and dispute resolution.
- Allocation of Risk: representations and warranties, indemnification, escrows, holdbacks and baskets, collars, maximums, survival periods and methods for dealing with surprises.
Time is of the essence to close; surprises will surface! Most of the issues that emerge during or prior to closing are legal in nature. At this time, the transaction attorney is the leader of the M&A team. The investment banker ensures that the attorney is apprised of the business terms negotiated through the executed Letter of Intent. The members of the seller’s M&A team will each bring a discrete and complementary expertise to the final negotiations and the closing of a transaction.