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
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
An earnout is the method of paying the seller of a company based on that company’s future earnings. The earnout will call for additional payments to the seller if the company’s post-sale earnings reach a certain level. The earnout is useful when buyer and seller do not agree about the
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
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
