McGuireWoods partner Clare Lewis and associates PJ Harris and Jacob Mitchell authored “A Deal Lawyer’s Guide to Purchase Price Considerations,” published in the spring 2024 edition of Deal Points, the newsletter of the American Bar Association’s Mergers & Acquisitions Committee.
The authors explore structuring and risk allocation in M&A dealmaking and discuss traps for the unwary in negotiating purchase agreements. Their article details how lawyers can help dealmakers achieve their business goals by tailoring purchase price mechanics. They discuss six areas of consideration that are highly negotiated: rollover equity, seller financing/deferred payments, earnouts, indebtedness and transaction expenses, indemnity escrows and adjustment escrows.
“Thoughtful drafting by a deal lawyer can help a purchaser and seller craft a deal where there might not otherwise be one,” the attorneys wrote. “An effective deal lawyer can help bridge valuation gaps, mitigate risk, and protect both immediate and long-term interests.” “Superficial analysis and drafting can have catastrophic consequences in dealmaking, and lead to results like overexposure to risk, avoidable litigation, and money left on the table for a client,” they concluded. “It is therefore essential to have a professional understanding of the concepts discussed above, and many others that dealmakers rely on counsel to get right.”