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More from LAVA: The pitfalls of mergers and acquisitions

2008-06-13

Also at the June 10 LAVA meeting, M&A law specialist Rob Carlson presented some of the typical pitfalls of merger & acquisition deals. Rob is a partner at Paul Hastings, a huge global law firm that covers all aspects of business law.

I won’t go over his presentation exhaustively, but suffice it to say that he pulled out a number of interesting examples and corresponding cautionary tales. In summary, here is what I took away:

(1) Watch what you write into letters of intent, because the other party might use those to try and force you into something later. Legal proceedings intended to force the defendant into a course of action, rather than simply demand renumeration, are actually quite common

(2) When negotiating the terms of a deal (no matter what kind of deal, whether it’s a corporate M&A or you’re signing an apartment lease), make sure that every clause is openly discussed between the two parties. While a tiny clause at the end of a big contract is technically enforceable, it is possible that a court will throw it out on the principle that it was not part of forthright negotiation between the two parties.

(3) Some M&A deals fall down when one party is unable to secure financing, due to a failure of diligence to insure that the money would be there. If you’re embarking on any kind of deal (like buying a car, house or company), it pays to get your financing ducks in a row before you hammer out the terms. Don’t tell someone that you are ready to pay when you are not sure the money will be there.

I think Mr. Carlson was worried that the legal subtleties were boring the audience. I found them fascinating, and I think they really pointed to the intersection of law and ethics. The fact is, when they are gray edges around the letter of the law, judges will tend to err on the side of ethical, forthright behavior. I guess sometimes the system works!

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