July 2010

Michael Hutchings.jpgTyler Hollenbeck.jpg

CONTRIBUTED BY
Michael Hutchings
(michael.hutchings@dlapiper.com) and
Tyler Hollenbeck (tyler.hollenbeck@dlapiper.com)

target_small.jpg

Although signing and closing of merger agreements occasionally occur simultaneously in mergers between private companies, most acquisition transactions, particularly those involving public companies, include a pre-closing period following execution of the merger agreement. During that period, certain conditions must be satisfied in order to consummate the merger.

In such transactions, one of the most powerful and heavily negotiated closing conditions is the requirement that the target’s representations and warranties be accurate as of a certain date or dates. In both private and public company acquisitions, this closing condition generally requires that the target’s representations be accurate both when made and when “brought down” to the date of closing.

This so-called bring-down condition plays a vital role in allocating risk between the parties during the pre-closing period. However, the extent to which this risk is placed solely on the target depends largely on the use of materiality qualifications in the bring-down condition. Subtle, semantic variations in the materiality qualifier can result in substantive shifts in risk allocation. It is important for companies considering acquisition transactions to thoroughly understand the common variants of such materiality qualifiers, as well as their frequency in comparable transactions.Continue Reading Understanding the bring-down condition in public company mergers