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Purchase Agreement Covenants

While, if there is interest, I will be able to talk in the future about some of the themes of the specialized acquisition agreement and I will probably comment on new developments if they prove interesting, I think this series is isolated. It will help at least the average private equity professional better understand one of the key transaction documents of a private equity transaction. Beyond the aforementioned joint agreements, each acquisition agreement will have specific pre-closing and closing agreements, tailored to the circumstances of the transaction. These completion conditions generally include requirements requiring: (i) each party`s insurance and guarantees to remain correct on the reference date; (ii) none of the parties violates its obligations under the sales contract; (iii) all necessary consents were obtained by the government and third parties; (iv) there are no legal proceedings that undermine the objective or ability of the parties to conclude the parties; (v) the buyer is satisfied with his duty of care; (vi) that the buyer has received sufficient financing; and (vi) all ancillary restrictions and closing deliveries have been delivered. These restrictive alliances and positive alliances/provisions are only part of the many elements that make up the sales contract and the merger transaction as a whole. But despite the outdated connotation we have with the word “alliance,” these are formal agreements that are important to preserve the value of the business and should not be overlooked by the seller. The reality is that the buyer or management of the target company needs cooperation to facilitate debt financing agreements5, for example by helping to prepare memorandums on debt financing. Participate in road shows organized by banks to market loans to potential institutional investors and other banks, provide financial information that is necessary under the terms of debt financing agreements, facilitate the acquisition of guarantees on the assets of the target entity, as requested by lenders, and assist organizing banks in carrying out necessary checks on knowledge clients and the fight against money laundering. Dissociation alliances. In addition, several issues related to the historical positioning of companies acquired as a group of sellers need to be addressed.

Dissociation is generally not completed on the reference date. For this reason, the following points are often provided: unlike the “Representations” section, which contains a snapshot of the seller`s transaction at a given time, the “Alliances” section describes the acts the seller must take or refrain from taking or abstaining from for a given period of time. It`s a pre-conclusion. During the period between the signing and closing of the transaction, the activity of the acquired businesses would normally continue in good standing. Expected investments (for example. B the renewal or maintenance of production facilities and facilities) may continue as planned. Buyers will likely want to prepare, confirm or develop their business plan for acquired businesses. Suppliers and customers also speak to their colleagues in the company sold and ask for clarification on the transaction (and certainty about their current position). Some contracts contain control-modifying provisions, which may even trigger price renegotiation or other conditions.

As with everything in life, questions arise in normal business. Since any such issue could affect the value of the acquired companies or the possibility of integrating the acquired transaction into the buyer`s business, prior agreements would be reached, probably with the buyer`s participation. Such preliminary alliances could, for example, address the following topics: Your Path: The Covenant section will not serve its purpose if it does not meet your specific needs, so think carefully about what those needs are and make sure you have a business lawyer who can help you create alliances.

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