Buyer Protection Flashcards
- Competition Law
Clearance must usually be secured from relevant competition authorities ( such as European Commission) for proposed mergers or acquisitions.
Due Diligence
refers to the process under which the buyer and its advisors carry out in-depth investigations into many aspects of proposed target companies
Confidentiality Agreement / Non- Disclosure Agreement (NDA)
sellers can deter buyers from publicly revealing sensitive information to which they become privy throughout the due diligence process by ensuring that they sign a confidentiality agreement. This can ensure companies ( which may also be competitors) do not benefit from inside knowledge relating to the seller’s company if the proposed transaction falls through.
Assets
Acquisitions will typically involve the transfer of tangible assets such as inventory, machinery, buildings and vehicles and intangible assets such as shares and intellectual property rights.
Liquidity
How easily a business’ assets can be converted into cash. If a company is highly liquid, it can easily convert its assets into cash. This may be important if a bidder plans to sell some of the target’s assets post-transactions.
Change of Control Clause/ Break Clause
such clauses can enable parties that are contracted to work with a company to terminate the contract without incurring any liability for breach of contract if control of the company changes hands.
Non- Solicit Clause
a contractual promise form a seller to a buyer not to approach and attempt to each, for instance, certain key employees, suppliers, distributors or customers of the newly purchased company for a given time period or in a particular jurisdiction.
Warranty
a factual statement in a contract that amounts to an assurance or a promise relating to a the condition of an object or entity that the buyer is purchasing, the breach of which may give rise to a legal claim for damages.
Indemnity
buyer protection, asking for pound for pound compensation if specified scenarios take place. For instance, if the target company is in the middle of a law suit at the time it is acquired, the sellers can agree in advance to pay back any money to the buyers that the company is required to pay out in relation to the law suit. Indemnities may be subject to caps, for instance maximum amounts that will be paid out if claims are made or time limitations upon the duration for which indemnities can be relied upon.
Non- compete agreement
a promise from the seller that if the deal goes ahead, the seller will not start up a similar business and emerge as a competitor of the business being acquired. Such agreements will suavely apply for a limited period of time ( typically 3 years) and/or apply to regions in which the business being acquired already operates.
Entire agreement clause
clause stating that only the terms contained within the contract apply to the agreement and thus any previous negotiations or oral statements that are not recorded in the contract do not apply or bind the parties
Condition Precedent Agreement
lists conditions that must be fulfilled before full performance under a contract becomes due. Notable examples of conditions precedent include the verification ( through due diligence) of all the key promises made by the seller prior to the transaction and the receipt of clearance from the relevant competition authorities.
