M&A: Key points to look out for in contracts entered by target companies

Contracts

In an M&A transaction, it is important for a buyer to understand the contractual rights and obligations binding the target company under the contracts entered by the target company.

However, the contracts may be voluminous and it is easy to get drowned in the details.

Some key points to look out for in a contract entered by the target company:

1.    Parties to the contract

2.    Consideration- amount, mode of consideration, payment term

3.    Recitals usually explain the nature of the contract

4.    Term and termination
·      When does the contract expire?
·      Are there are any extension or renewal clauses?
·      Can the counterparties terminate the contract unilaterally or upon certain events triggered by the M&A transactions, such as change of control or shareholding provisions?
·      How long is the notice period to terminate?

5.    Are there any liquidated damages, penalties, uncapped liability or indemnity, or service level clauses which may lead to loss-making contract.

6.    Are there any restrictive covenants and exclusivity provisions in the contract which will restrict how the target company conduct its business such as non-competition or ‎non-solicitation provisions? ‎

7.    Do the counterparties have the right to assign the contract to third parties without consent from the target company?

8.    For intellectual property related contract, who owns the intellectual property right which is the subject matter of that contract?

9.    Whether there are other onerous provisions which may affect the business or financial position of the target company

#malaysiancorporatelawyer
#mergersandacquisitions
#legalduediligence

This post was first posted on Linkedin on 23 December 2022.

Linkedin Post
M&A: What you need to consider for sale and purchase agreement

Before diving headlong into drafting the sale and purchase agreement for an M&A transaction, take some time to understand the business of the target company and the regulatory framework in which it operates. Consider the following: 1. 𝗕𝘂𝘀𝗶𝗻𝗲𝘀𝘀 𝗔𝗰𝘁𝗶𝘃𝗶𝘁𝗶𝗲𝘀: What are the business activities of the target company? What products or …

Linkedin Post
Five key steps for legal due diligence

Most lawyers are good at identifying issues, but legal due diligence shouldn’t be limited to merely reviewing documents and identifying issues. Here are my five steps for conducting legal due diligence: 1. Identify the issues based on the scope of legal due diligence as agreed with the clients. 2. Provide recommendations …

Linkedin Post
Begin with the end in mind: Post-completion integration

I once worked on an M&A deal that took more than a year to complete. While the deal was not inherently complex, it dragged on due to delays in finalizing the details of the transaction agreements for reason beyond my control. As the deal involved a larger corporation acquiring a …