Category: M&A and Exits
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Get a Deal Done with a Go Shop Clause
When acquiring a company, you typically want to lock down your target and prevent it from seeking other potential buyers (see no shop clause). But in some situations, allowing your target to shop the deal around, under the terms of a “go shop” clause, can actually facilitate the transaction and get the deal done. Typically,…
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What is a Leveraged Buyout?
A leveraged buyout (“LBO”) is a strategy where someone acquires an existing company using a significant amount of borrowed funds. Typically, the assets of the company being purchased are used as collateral for the borrowed funds. This allows someone to acquire a company without having to outlay a lot of personal or business capital. Then,…
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Negotiate the Basket
In the world of mergers and acquisitions, a “basket” is the amount of damages that must be suffered by the acquiring entity before it can recover from the seller under the indemnity provisions of the acquisition agreement. Three main issues arise in drafting the basket clause: (1) Size–Typical basket amounts are in the 1 to…
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Using a No Shop Clause in a Letter of Intent
If you are buying a business, the process becomes expensive and tedious once the letter of intent is signed. For this reason, I recommend all buyers include a “No Shop” provision in their LOI. This provision prevents the seller from going behind your back and finding other suitors while you are busy with due diligence…
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When to Use an Earnout Provision
If you’re selling your startup and the buyer proposes an earnout, the short answer is this: earnouts are usually a sign of unresolved risk or disagreement, not free upside. Sometimes that risk really does need to be bridged. Often, it’s a warning light. This matters most if you’re a founder selling a venture‑backed company where price,…
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Watching Your Client Overleverage an Acquisition
As counsel, is it appropriate to speak up if you believe your client is overleveraging to finance an acquisition? Two factors must be considered to answer this question: (1) Your capacity. You are an attorney (not an I-banker). That law-school corporate finance elective or that undergrad finance degree might have defined “leverage,” but it likely…
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Include Confidentiality Clause in Letter of Intent
When negotiations need to remain confidential, a letter of intent should obviously include a confidentiality cause. But in the case of startup companies–replete with their fresh and new ideas–a confidentiality clause is a requirement. Information will be exchanged during due diligence and the negotiations, thus the parties should agree on what information is confidential. In…