Classification: Under the Radar
Negotiation Time: Minimal to Moderate
Transaction Costs: Insignificant
Major Impact: Transaction Completion
What is This? The timing and content of acquisition announcements can be important to each side for various reasons, but it is not so critical that the parties should spend valuable time on it before the deal is closed. Instead of agreeing on the specifics of the announcement pre-Closing, the parties use this covenant to agree more generally about who will draft the announcement and who must consent to its release.
The Middle Ground: Both parties agree that they will not publicly announce the acquisition without the cooperation and consent of the other party (unless required to do so by law, as determined by the reasonable advice of legal counsel). The Agreement may also stipulate that the consent required here cannot be unreasonably withheld or delayed.
Purpose: This provision allows both sides to control how and when interested third parties find out about the acquisition. In the lower middle market context, this covenant is aimed less at controlling the media coverage around the transaction and more at limiting its disruptive effect on employees. However, since limiting such disruption is in the best interests of both sides, in the absence of this provision, these transactions would be consummated as planned 99% of the time.
Buyer and Seller Preference: This clause will likely make it into the Agreement unaltered since it is usually not worth the time for either party to bring it up during negotiations. If the parties do address it directly, the discussion will probably focus on when and how the deal announcement will be made. With that being said, some buyers may not want to qualify the consent requirement, and there may be minimal negotiations devoted to that issue. Whether the consent requirement is altered, or even instituted in the first place, will likely be an outcome determined by the level of trust between the parties. Additionally, the “cooperation requirement” may not be included if the parties trust one another and one side has significantly more PR-related resources than the other.
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.