USA Law and Practice Contributed by: Vijay Sekhon, Brien Wassner, John Godfrey and Justin Macke, Sidley Austin LLP
antitrust issues) and higher reverse break-up fees are common in competitive auctions. These fees serve as a substitute for broad seller remedies, offering predict - able damages in the event the deal does not close. Target break-up fees are also common (2–4% of deal value) in public deals, typically payable if the target board accepts a superior offer or materially breaches its obligations. 6.7 Termination Rights in Acquisition Documentation Typical termination scenarios include the following. • Mutual Consent – The parties may agree to termi - nate the deal at any time by mutual written agree - ment. • Outside (Longstop) Date – Either party may termi - nate if the transaction has not closed by a speci - fied longstop date, typically four to six months from signing in private deals, though this may stretch to nine to 12 months for public transactions or deals requiring complex regulatory approvals (eg, CFIUS, antitrust in multiple jurisdictions, telecommunica - tions). • Legal Prohibition (Injunctions) – Either party may terminate if a final, non-appealable governmental injunction or order prohibits the consummation of the transaction. This applies most often where an antitrust or national security authority obtains a court order blocking the deal or where a court enjoins the closing on public interest or regulatory grounds. • Material Breach – Either party can terminate if the other has materially breached its obligations, and such breach remains uncured (typically 15–30 days after notice) and is a primary cause of the closing conditions failing to be satisfied. • Financing Failure (Reverse Break Fee) – In deals where the buyer fails to close despite all conditions being met and the third-party financing is unavail - able, the seller may terminate and receive a reverse termination fee as liquidated damages. 6.8 Allocation of Risk While the legal framework governing private deals is the same, PE-backed sale transactions are structured for speed, certainty and clean exits, with market-
standard terms that minimise post-closing entangle - ments. Corporate-backed sell-side deals, by contrast, tend to be more bespoke, with greater tolerance for complexity, conditionality and shared risk, particularly in strategic combinations. Private equity sellers typically seek a clean exit, push - ing for limited recourse structures, eg, reliance on RWI, no indemnities and no survival periods. In contrast, corporate sellers may offer broader representations and tolerate indemnities, especially in strategic deals or carve-outs where integration risk matters to the buyer. RWI is standard in private equity exits and often buyer-funded in auctions. For corporate sellers, RWI is increasingly common but less universally adopted. Private equity sellers are especially motivated to avoid escrow holdbacks or delayed distributions, while cor - porate sellers may be more open to bespoke struc - tures (eg, earn-outs or indemnity escrows) depending on strategic objectives. Private equity buyers are more accustomed to “public- style” certainty, limited closing conditions, no financ - ing outs and robust financing commitment structures. Corporate buyers may push for broader walk rights, take longer to conduct due diligence, and/or create greater regulatory approval risk. Sellers often prefer PE-backed buyers for their deal execution speed and predictability particularly where the PE-backed buy - ers offer a full equity backstop commitment letter to eliminate debt financing risk. 6.9 Warranty and Indemnity Protection In US private equity exits, warranty and indemnity exposure is tightly limited, reflecting the PE seller’s priority to achieve a clean exit with minimal tail liability. Market-standard practice relies heavily on RWI, with the seller’s actual post-liability often reduced to nomi - nal levels for limited purchase price adjustments for debt, equity and transaction expenses as of closing. Tax matters are either covered under RWI or subject to a limited indemnity with a longer survival period (typi - cally six to seven years). Known issues excluded from RWI are usually only addressed via specific indemni - ties if they are significant, and such indemnities are generally supported by escrows or separate caps.
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