Our US Team has advised on several transatlantic sale transactions in recent months – rather bucking the trend. With M&A activity expected to rebound by year-end, we thought it timely to share our experiences and outline the main differences to expect when dealing with a US buyer in a corporate sale transaction.
With international merger and acquisition activity becomes increasingly common, historic differences between UK and US practice are diminishing, but several key distinctions remain, ranging from vocabulary to regulatory matters. Some of these key differences are highlighted below.
UK and US sale agreements are broadly similar in form but there are some material differences in approach and legal effects.
Conditions: US purchase agreements are more likely to contain conditions to a buyer’s obligation to complete the transaction. These may include financing conditions or regulatory approvals, and allow a buyer to withdraw from the deal if it has failed to obtain the necessary financing.
Termination fees: Consequently, termination fees are more common than in UK deals, where if financing/approval is not received, the buyer will pay a fee to the sellers.
Completion accounts: A purchase price adjustment mechanism based on completion accounts remains the most common approach for US buyers.
Completion escrow: Sellers are often required to deposit a portion of the purchase price into an escrow account as security for the obligation to pay any “true-up” on the purchase price.
Sellers’ Liability: Risk allocation under the warranties tends to favour the buyer in US purchase agreements.
Warranty Coverage: The coverage provided is generally broader, warranties and representations less qualified by materiality threshold and sellers’ knowledge.
Restricted disclosures: On disclosures, the US approach is more restrictive – a buyer will allow specific disclosures only in respect of each warranty. General disclosures are not common.
Indemnities: The norm is indemnification for breach of representations and warranties, and an escrow may be the exclusive source of recovery for claims except certain fundamental warranties and fraud.
Beware the differences in vocabulary!
Practicalities may determine which law is followed, but both are well-established legal systems.
While the market standard for English law agreements may be more seller-friendly, with the US, you can expect more negotiation, more risk, more paperwork, and maybe more money…
[Note: This information is very much a high-level summary and should be treated as such. Legal advice should be taken on any M+A transaction. While all reasonable care has been taken in its preparation of this information, no responsibility is accepted by MBM Commercial LLP for any errors it may contain, whether caused by negligence or otherwise, or for any loss, howsoever caused, occasioned to any person by reliance on it. Individual advice should be sought before considering any of the matters detailed in this presentation. If you have any questions regarding your business operations in the US, please get in touch with a member of MBM’s US Team.]