Category: M&A and Exits
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Founder Employment Agreements in Exits
TL;DR: In most acquisitions, founder employment agreements is where the buyer sets your post-close reality: role, reporting line, compensation and retention, severance, and the exit ramps if it does not work out. Buyers often deliver a broad, standard-form restrictive covenant package late in the process to create time pressure, and it can include a much…
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Escrow and Holdback in Startup M&A
TL;DR: In most private-company startup acquisitions, it’s normal for the buyer to hold back a portion of the purchase price in an escrow (or as a holdback) for 12 to 18 months to cover post-closing surprises, so the real question is not “why isn’t my money here,” but how big it is, how long it lasts, and how easy it is for…
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What an LOI Actually Does (and What It Doesn’t) in a Startup Acquisition
If you’re selling your startup, the letter of intent (LOI) feels like a finish line. It’s not. The short answer is this: an LOI usually sets the economic headline and the deal process—but it does not lock in the outcome. It gives structure and momentum to an acquisition, but very little legal certainty. That gap between…
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What Happens to the Option Pool if a Startup is Acquired?
The option pool is the amount of common stock a startup reserves (typically at each series of financing) for future issuances to employees, directors, advisors, and consultants. For example, if a startup has 5,000,000 shares of common stock outstanding immediately before the Series A round, a condition of the Series A round may will be…
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Reverse Breakup Fees: More Trendy than the 3G iPhone
It looks as though private equity buyers better get used to seeing reverse breakup fees and other seller-friendly provisions in their merger agreements. TheDeal.com details how reverse breakup fees are becoming industry-standard provisions in private equity LBO deals in a new article called “Desperately Seeking Certainty:” Starting with the 2005 sale of Neiman Marcus Group…
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Reverse Breakup Fees: Making Acquisitions Less Risky for the Selling Company
How target companies are using reverse breakup fees to re-allocate deal risk
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Don’t Be Coy With a Letter of Intent
I recently worked on a deal where the prospective seller over-strategized the letter of intent. The seller wanted my client to sign a non-binding LOI that contained about half of what should have been included in the letter. It was extremely frustrating and ultimately was a waste of time, because rather than acquiesce to the…
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How To Handle Intellectual Property When Buying A Business
The business purchaser needs to ascertain if intellectual property rights are needed for the continued operation of the business. Intellectual property rights that are important include trademarks, copyrights, service marks, and trade names. All of these IP rights are assignable. For example, the ownership of a copyright may be transferred in whole or in part…
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The Deal Behind Letters of Intent
A letter of intent is a pre-acquisition agreement that shapes the preliminary understandings of the parties. Although usually non-binding (for the most part), it serves as the bridge between initial negotiations and the purchase agreement. And that’s important because the letter of intent should facilitate the deal. The letter of intent will set forth the…