Safeguarding M&A deals - part one
First published in The Royal Gazette August 2017
Bermuda companies competing in the international business sphere are under continued pressure to grow and thereby succeed on a greater scale.
In recent years, there has been a great deal of merger and acquisition activity for Bermuda companies, arguably because, as Brian Schneider senior director at Fitch Ratings has commented, “organic growth options are limited and scale and diversification are driving a rapid pace of mergers and acquisitions”.
This two-part series explores the interplay between the counterparties once an acquisition or combination (business combination) has been agreed upon and provides an overview of deal protection mechanisms available to both target and bidding companies.
Once the form of business combination has been agreed upon by the respective boards, care should be taken to ensure that the interests of both the target and bidding company are adequately protected during the negotiation period and between signing and closing. Consequently, deal protection mechanisms tend to be some of the most heavily negotiated provisions.
Deal protection mechanisms are arrangements between the boards of directors of the bidder and target company that are intended to discourage alternative (even superior) proposals with a view to protecting the transaction if a competing bid emerges.