USA – CALIFORNIA Trends and Developments Contributed by: Vijay Sekhon, Mehdi Khodadad, Nicolai Schwarz-Gondek and Payom Pirahesh, Sidley Austin LLP
of the new presidential administration. The FTC Chair had also publicly suggested the agency might recon - sider whether to continue to defend the rule. PE spon - sors are coordinating with legal advisers to keep up with legal challenges and structure non-competition and similar agreements to comply with such rule and related exemption. At the same time, states continue to take varied approaches to restrictive covenant enforcement, and further limitations (particularly on non-competition and related covenants) are expected at the state level. Changes in Delaware law In early 2024, the Delaware Court of Chancery held provisions of a stockholder agreement that included a stockholder pre-approval requirement for certain company board actions and imposed other obliga - tions and restrictions on the board were invalid and unenforceable. In response, the Delaware legislature passed (and the Delaware governor signed into law) an amendment to the Delaware corporate law over - turning the ruling and permitting stockholder agree - ments if the agreement does not violate the com - pany’s charter and would not violate Delaware law if included in the charter. In 2025, Delaware enacted reforms to its General Cor - poration Law, simplifying the rules for transactions involving directors, officers and controlling stockhold - ers, while restricting shareholders’ access to corpo - rate records. These changes extend “safe harbor” protections to transactions with controlling stockhold - ers and clarify definitions for “disinterested” parties and “controlling stockholder”. The reforms narrow the scope of documents shareholders can access, raise the standard for requesting records, and allow corpo - rations to limit records’ use. In light of these developments, many corporations are reassessing their domicile, with some exploring redomestication to Texas and, more recently, Nevada. These jurisdictions are perceived by some PE spon - sors as offering more favourable regulatory environ - ments, particularly in the context of litigation risk and shareholder rights. Texas has seen a steady increase in corporate migration over the past several years, while Nevada’s recent push to attract businesses has sparked interest due to its flexible corporate statutes
and perceived business-friendly courts. Although Delaware remains the dominant corporate jurisdic - tion, these shifts reflect a broader re-evaluation by PE sponsors of governance frameworks amid evolv - ing legal and political dynamics. Legal Trends M&A deal terms In the current market, M&A deal terms are evolving amid increased competition and regulatory scrutiny. Some PE sponsors are “jumping” auctions by submit - ting early bids with short confirmatory due diligence, while larger PE sponsors are demonstrating speed by reaching signing within days. Larger PE sponsors, who can offer “full-equity backstop” commitment let - ters that allow targets to compel payment of the entire purchase price once closing conditions are met, have an edge in auctions over smaller PE sponsors, who cannot offer such terms due to fund concentration limits. In private M&A transactions, there has been a steady increase in earn-outs, where a portion of the purchase price is contingent on the future per - formance of the acquired business, to help bridge valuation gaps between buyers and sellers and align interests. Representations and warranties insurance (RWI) is increasingly used to mitigate risks associated with breaches of representations and warranties. RWI policies cover potential liabilities, facilitating smooth - er negotiations and reducing the need for extensive indemnity provisions. PE sponsors must carefully consider these evolving deal terms to navigate the complexities of M&A transactions effectively. Alternate deal structures In 2025, PE sponsors are adopting innovative deal structures to navigate market complexities and enhance returns. Frequent strategies include earn- outs and contingent payments, linking part of the purchase price to future performance, and minority investments with negotiated control rights, allow - ing influence without majority ownership. Structured equity, combining debt and equity features, offers flexibility and risk mitigation, while joint ventures and strategic partnerships provide additional capital and expertise. Co-investment opportunities for LPs have also become more popular, allowing LPs to invest alongside the main fund, often with reduced fees and improved terms. PE sponsors increasingly use these
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