Private Equity

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Earnout provisions in acquisition agreements can be a useful tool in bridging the valuation gap by deferring portions of the purchase price until certain post-closing milestones are achieved, and they are particularly common in developmental-stage pharmaceutical transactions.  Practitioners should take note of the September 5, 2024 opinion in Shareholder Representative Services LLC v. Alexion Pharmaceuticals, Inc., in which the Delaware Court of Chancery held a buyer, Alexion, liable for breach of contract both for its failure to use commercially reasonable efforts to achieve milestones for which future earnout payments may have become due and for its failure to pay an earned milestone payment to selling securityholders of Syntimmune, Inc.[1]Continue Reading Delaware Court of Chancery Finds Buyer Failed to Use Commercially Reasonable Efforts in Pharma Milestone Payment Case

In a May 31, 2024 opinion, the Delaware Court of Chancery denied a motion to dismiss a complaint challenging the sale of a public company with a controlling private equity sponsor to an unrelated, arms-length buyer, finding that the sale was potentially tainted by conflicts of interest.[1]  In particular, the court found that it was reasonably conceivable that the private equity sponsor’s receipt of an early termination payment under a tax receivable agreement put into place upon the target company’s initial public offering was a material non-ratable benefit, which may have led the sponsor to push for a sale (which would trigger the early termination payment), even if remaining a standalone company would have been better for the minority stockholders. The opinion also touches on important issues relating to financial advisors’ advice in connection with such a sale. While tax receivable agreements (“TRAs”) are common in sponsor-backed and “Up-C” IPOs, this case highlights a rarely considered issue involving these agreements, and the need for careful navigation of related potential conflicts of interest in a sale process where a private equity sponsor, and TRA beneficiary, continues to control the public company.Continue Reading Delaware Chancery Court Finds Private Equity Sponsor’s Tax Receivable Agreement Potentially Led to Conflicted Sale Process

As 2024 gets off to a busy start, companies, boards and management teams are facing a host of new and developing business issues and a large array of regulatory developments, from new and growing risks and opportunities from the adoption of artificial intelligence, to ever-changing ESG issues and backlash, as well as enhanced focus on government enforcement and review. As has become a tradition, we have asked our colleagues from around our firm to boil down those issues in their fields that boards of directors and senior management of public companies will be facing in the coming year, yielding focused updates in eighteen topics that will surely feature at the top of board agendas throughout the year.Continue Reading Selected Issues for Boards of Directors in 2024

In a May 29, 2023 opinion by the Delaware Chancery Court addressing a claim by sellers for specific performance under a merger agreement following buyer’s termination for breach of the capitalization representation, the court found that sellers breached the capitalization representation under the merger agreement based on the post-signing discovery that a former employee held phantom equity in a subsidiary of the target company.  Despite buyer’s concession that the financial value of the former employee’s interest in the subsidiary was “minor relative to the deal value,”[1]  the court concluded that buyer was entitled to terminate the merger agreement since the capitalization representation was brought down flat at closing (and not subject to any de minimis or materiality qualifier).Continue Reading Private Equity Buyer Permitted to Walk From Deal Based on Capitalization Representation Breach

In a recent opinion addressing breaches of fiduciary duties and disclosure violations in connection with a take-private of Mindbody, Inc. by Vista Equity Partners, the Delaware Court of Chancery reinforced the significance (to both buyers and sellers) of avoiding conflicts in a sell-side process and ensuring all material facts are disclosed to the target’s board …

Antitrust enforcement agencies have recently asserted that private equity firms deserve heightened scrutiny when engaging in corporate transactions. However, in the recent Change Healthcare decision, the Court found that a proposed divestiture to a private equity sponsor would adequately preserve competition. Rejecting the DOJ’s arguments to the contrary, the Court found that the sponsor’s “incentives…

Last week, the Financial Crimes Enforcement Network of the Department of the Treasury adopted a final rule (the “Final Rule”) to implement the beneficial ownership reporting requirements of the Corporate Transparency Act, part of the Anti-Money Laundering Act of 2020.

This legislation requires a range of U.S. legal entities, and non-U.S. legal entities registered to…

With effect as from January 1, 2023, the German Supply Chain Act dated July 16, 2021 (Gesetz über die unternehmerischen Sorgfaltspflichten in Lieferketten – Lieferkettensorgfaltspflichtengesetz) will enter into force.

Undertakings of a particular size shall take responsibility for, and implement diligence standards with respect to, human rights-related and environmental risks in supply chains.  An undertaking which is subject to the German Supply Chain Act, but not in compliance with the requirements stipulated thereunder, may face significant sanctions.
Continue Reading Germany Strengthens Corporate Social Responsibility in Supply Chains