Part 2:  Risks Associated with Transfers of Personal Data and Post-Closing Integration

One aspect of mergers and acquisitions that is receiving growing attention is the relevance of privacy issues[1] under U.S. and European Union (“EU”) laws as well as the laws of a growing number of other jurisdictions.[2]  This two-part blog post discusses the principal M&A-related privacy risks and highlights certain “traps” that are often overlooked.  In Part 1, we discussed risks associated with a target’s pre-closing privacy-related liabilities and considered ways to mitigate these risks through adequate diligence and privacy-related representations in M&A agreements.  In this Part 2, we discuss the risks associated with transferring or disclosing personally-identifiable information (“personal data”) of an M&A target (or a seller) to a purchaser (or prospective purchaser) and those associated with the purchaser’s post-acquisition use of such personal data.


Continue Reading

Part 1: Risks Associated with the Target’s Pre-Closing Privacy-Related Liabilities

One aspect of mergers and acquisitions that is receiving growing attention is the relevance of privacy issues[1] under U.S. and European Union (“EU”) laws as well as the laws of a growing number of other jurisdictions.[2]  This two-part blog post discusses the principal M&A-related privacy risks and highlights certain “traps” that are often overlooked.  In this Part 1 of the post, we discuss risks associated with a target’s pre-closing privacy-related liabilities and consider ways to mitigate these risks through adequate diligence and representations in M&A agreements.  In Part 2, we will discuss the risks associated with transferring or disclosing personally-identifiable information (“personal data”) of an M&A target (or a seller) to a purchaser (or prospective purchaser) and those associated with the purchaser’s post-acquisition use of such personal data.


Continue Reading

In a recent ruling (Halo Elecs., Inc. v. Pulse Electronics, Inc. and Stryker Corp. v. Zimmer, Inc.[1]), the Supreme Court adopted a relaxed and more plaintiff-friendly standard for determining whether to award enhanced damages in patent infringement litigation.  This ruling should be taken into account when considering allocation of patent infringement risks in M&A transactions, including in connection with representations and warranties and associated indemnities.
Continue Reading

In a decision with important consequences for merger and acquisition transactions and the litigation resulting from those transactions, a divided New York Court of Appeals held last week that the common interest doctrine applies only to post-signing, pre-closing communications between parties to a merger agreement if they relate to pending or anticipated litigation.  Other communications between separately represented parties to a merger (or other commercial transaction) are not entitled to privilege under New York law.
Continue Reading

The recently introduced “Brokaw Act” that proposes changes to the rules governing the reporting of ownership in U.S. public companies would expand the definition of “beneficial owner” to include any person with a “pecuniary or indirect pecuniary interest”, including through derivatives, in a particular security (borrowing the concept from the SEC’s insider reporting regime, which captures the “opportunity to profit” from transactions related to the relevant security). If passed and ultimately adopted, these changes would have a significant impact on the reporting obligations of investors by expanding the types of interests that would be counted toward the 5% threshold requiring the filing of a Schedule 13D. Because indentures often incorporate by direct reference the 13(d) concept of beneficial ownership, expansion of the definition could have ripple effects beyond increased public ownership filings.
Continue Reading

Companies based in the People’s Republic of China have committed to over $100 billion of overseas acquisitions since January 1, 2016, including a number of high profile targets in the United States and Europe.[1] The ties of these buyers to governmental entities in the PRC, coupled with the unpredictability of the PRC government, and the challenges that a non-PRC counterparty faces when seeking to enforce contractual obligations and non-PRC judgments in PRC courts has led practitioners to implement an array of innovative provisions in M&A Agreements.
Continue Reading

Updating our recent posting concerning the enforcement of disclaimers of extra-contractual liabilities under Delaware law, in FdG Logistics LLC v. A&R Logistics Holdings, Inc. (Del. Ch. Feb. 23, 2016) the Delaware Court of Chancery held, in the context of a motion to dismiss, that any such disclaimer must be unambiguously expressed as a statement by the aggrieved party in order to be effective.

FdG Logistics arose out of the purchase of a trucking company by a private equity firm through a merger transaction.  The purchaser alleged that the target company “engaged in an extensive series of illegal and improper activities that were concealed from it during pre-merger due diligence” and asserted, among other things, that the selling securityholders had committed common law fraud based on alleged misrepresentations in extra-contractual materials, including a confidential information memorandum and a management presentation.
Continue Reading

Acquisition agreements in private M&A transactions frequently contain language that purports to limit the purchaser’s recourse against the seller for extra-contractual misrepresentations, even if fraudulent, in order to allocate among the parties the risk of potential post-closing losses.  Such limitations on liability are generally enforceable under Delaware law when they have been specifically negotiated between sophisticated parties,[1] and are commonly implemented through a combination of a so-called “entire agreement” integration clause and an “exclusive representation” provision.  Delaware case law had previously suggested that such provisions might need to contain specific language to serve as an effective disclaimer, but the Delaware Court of Chancery recently ruled, in the context of a motion to dismiss, in Prairie Capital III, LP v. Double E Holding Corp. (Del. Ch. Nov. 25, 2015), that no “magic words” are required so long as the parties’ intention is unambiguous.
Continue Reading

In a landmark decision in Cavendish Square Holding BV vs Talal El Makdessi, the UK Supreme Court recently overturned a Court of Appeal decision (discussed here), and substantially re-formulated the English law principles relating to contractual penalty clauses. Upholding the validity of provisions in a purchase agreement that forfeited deferred consideration upon breach of non-competition covenants by the seller, the Supreme Court held that the true test as to whether a clause was penal (and therefore unenforceable) was whether it imposed a secondary obligation on the contract breaker “out of all proportion to any legitimate interest of the innocent party” in enforcing the obligation breached.
Continue Reading

A recent opinion [1] from the Delaware Superior Court addresses the not uncommon situation of a buyer of a business seeking to pursue remedies against the seller that are not specified in the purchase agreement based on allegations of fraudulent conduct by the seller or its representatives.  Specifically, the buyer acquired the shares of a company that had a liability (an obligation to make an “earn-out” payment to the former owners of a previously acquired company) that became payable after completion of the acquisition.  The buyer sued the seller alleging that the seller (and not the acquired company) should be responsible for satisfying the earn-out liability when it became due.
Continue Reading