M&A: Consider the following when structuring earnout payment
Earnout provisions in M&A sale and purchase agreements require careful consideration as there are many parts to the provisions. It is important to ensure there is no ambiguity to avoid dispute. Consider the following when structuring earnout payment: 1. What is the performance metric that needs to be achieved in order …
M&A: When a buyer is induced by pre-contractual representations
A buyer may decide to acquire shares or assets or accept certain terms in a sale and purchase agreement (SPA) based on verbal representations made by a seller. If these verbal representations turn out to be false, does the buyer have any cause of action against the seller? The seller …
M&A: The pitfalls of earnout
Earnout is commonly used to reconcile the differences between a seller’s expectation and a buyer’s willingness to pay the sum expected by the seller. It a contractual mechanism whereby the buyer will pay additional payment beyond the initial purchase price to the seller if the target company achieves certain business …
M&A: Why should buyer conduct due diligence instead of just relying on warranties
Buyer: “Why can’t we just rely on warranties given by the seller in the SPA? Why should we conduct due diligence on the target?” Here’s why: 1. Due diligence allows the buyer to: · identify any consents from authorities or other third parties that are required for the acquisition pursuant to the …
M&A: When sellers refuse to give warranties
In M&A transactions, it’s common for the sellers to provide warranties to the buyers as assurance to the buyers on the condition of the target companies or business. However, the following sellers may argue that they should not be required to provide warranties or are willing to provide limited warranties …
Understand the “why” for M&A transaction
As lawyers, we need to understand the “why” that drives each M&A transaction. Why? So that lawyers could prepare drafts that are aligned with the clients’ objectives. The most enjoyable and efficient M&A transaction that I have done was one which the client worked closely with us to provide the …
M&A in Malaysia: What you need to know about private limited company
A private company limited by shares is a common legal entity encountered in M&A transactions, either as a seller, buyer or target. Some of the key requirements governing a private limited company include: 1. The Companies Act 2016 (“CA”) requires a private limited company to have at least one director, …
M&A: Quantitative limitations of liability
In M&A transactions, sellers may try to limit their liabilities by having quantitative limitations in the SPA. Quantitative limitations may take the following forms: 1. “De minimis” limit provides a minimum limit for a claim to be recoverable. The rationale is to exclude small claims where the cost incurred in recovering …
M&A: Dividend of a Malaysian company
When structuring an M&A transaction, declaration and distribution of dividend of the target company after completion may be one of the points that the parties want to include in a shareholders’ agreement. The following are some points to take note for declaration and distribution of dividend of a Malaysian company: …
M&A: Three types of material adverse change (MAC) clause
When drafting MAC clause in a sale and purchase agreement, consider which of the following may be more appropriate: 1. Measurable MAC This type of MAC clause provides that MAC is deemed to have happened when measurable financial metrics such as profit, EBITDA or turnover of a target company declines …