Key Takeaways for Investment and M&A practitioners, sponsors, investors, acquirers and management

The judgment carries practical implications for everyone involved in negotiating, executing and managing investment and M&A transactions. The headline lessons go to the structure of the deal documents themselves, but the operational lessons are equally important: how a deal team handles the signing-to-completion period, how instructions to counsel are communicated and how disputes between the parties are managed before they crystallise into litigation.

Key Takeaways:

1. Term sheets can bite

The ETS was enforceable despite “subject to a definitive agreement” wording. Where mandatory language is used alongside an express statement of legal effect, courts are likely to find binding obligations. If only certain provisions are intended to bind, a clear binding/non-binding split clause is essential.

2. Manage the signing-to-completion gap actively

The dispute turned largely on conduct between signing and Gopher’s instruction to halt work. Deal teams should maintain clear records of decisions, instructions and changes in position. A unilateral decision to stop progressing definitive documents can carry repudiation risk if the underlying term sheet is binding.

3. Instructions to counsel are not internal correspondence

Clients regularly assume that telling their solicitors to pause or terminate work is a matter between them and their lawyers. Where a binding term sheet includes a good faith negotiation obligation, such an instruction may evidence repudiatory conduct. Deal teams should treat any decision to walk away from a binding term sheet as one requiring contemporaneous legal advice and, ordinarily, written notification to the counterparty.

4. Warranties and representations can overlap

The combination of sequential execution and drafting in the MWD led the Court to treat warranties as representations. This is particularly relevant in private equity transactions using separate management warranty deeds. Warrantors who wish to ensure that warranty claims are subject to the negotiated liability cap should, in addition to requiring entire agreement provisions to exclude all forms of pre-contractual statement, include an express confirmation that no party has relied on any statement as a representation.

How we may may you for advice on equity term sheets, management equity arrangements or investment and M&A transactions in general, please contact our Corporate Team.