Classification: Under the Radar
Negotiation Time: Minimal
Transaction Costs: Usually Insignificant, but varies depending on the further action required
Major Impact: Risk Management
What is This? Buying a business requires paying attention to many different areas of the business, and some steps that are needed to accomplish the transition from one owner to the next happen after the Closing Date. Rather than list out every single step within the Agreement (an exercise that would inevitably result in important steps being overlooked), both parties promise to take any reasonable actions that are required in order to carry out the terms of the Agreement.
The Middle Ground: This provision requires each party (and their respective Affiliates) to take any further actions following the Closing that are reasonably required to fulfill the Agreement and the other Transaction Documents.
Purpose: The covenant is included to address miscellaneous, post-Closing issues that are not explicitly covered elsewhere in the Agreement. It serves as a risk management tool for both sides and is meant to ensure that the actual outcome mirrors the bargained-for exchange.
Buyer Preference: None.
Seller Preference: None.
Differences in a Stock Sale Transaction Structure: None.
We want The Middle Ground to be an ongoing dialogue for and resource to the lower middle market M&A community. The outline above is generally applicable, but there is always specific case law and nuance around certain industries that can be useful in helping buyers and sellers come together. If you are a lawyer or deal professional, we encourage you to add your perspective below.