It doesn’t take a change in the law to change how deals are done, but a change in the market or the participants, as well as the price, does make a difference, according to Kate Sherburne at Faegre Drinker Biddle & Reath.
One factor influencing the negotiations over terms is rep and warranty insurance. When a deal is being negotiated, the seller will make representations and warranties as a way of informing the buyer if the situation. But businesses are big, and it’s impossible to know everything with absolute certainty, Sherburne said. The purchase agreement may require the seller to indemnify the buyer. That can be a problem.
So the buyer gets a rep and warranty policy. It’s very expensive, depending on the size of the policy — 2% to 3% of the coverage limits, plus fees. Sherburne said it’s not a perfect replacement for indemnification, but reports are that more insurers are getting into the market, she said.
Uncertainly about getting clearance from the Federal Trade Commission or the Department of Justice in cases of antitrust issues also has become an issue.
“There used to be more of a path to work through solutions. Now it’s something buyers and sellers are focused on early, you’re taking to antitrust experts earlier in the process. ‘Are we going to get approval and how long will it take,’” Sherburne said.
Parties set an “outside date” for completion of a deal, after which either side can walk away without penalty. When that’s set, lawyers figure in time to resolve antitrust issues. That used to be about three months, now lawyers allow a year or more. And if there is a second request, the cost of the deal escalates.
Early terminations are no longer available to cut short the approval time, Sherburne said. That’s the result of change in position at the agencies, she said. “Also indicative of the changing of the guard, they started sending letters saying ‘you can close but we might look at it later.’ That feels different. It says, ‘I see you,’” Sherburne said.