USA Law and Practice Contributed by: Nicholas A Dorsey, Ryan J Patrone, Kelly M Smercina and Margaret R M Rallings, Cravath, Swaine & Moore LLP
1. Market 1.1 Major Lender-Side Players
stages in the acquisition negotiation, or before it will execute a definitive acquisition agreement. Even if not formally required as part of a sales process, potential acquirers may obtain com- mitted financing to demonstrate that they are serious bidders with the financial wherewithal to complete the acquisition in a timely manner. Furthermore, in US transactions, the definitive documentation for an acquisition rarely, if ever, includes a condition to closing that the acquirer has obtained funding sufficient to pay the pur- chase price; therefore, obtaining committed financing provides comfort to the acquirer that it will have the necessary funds on the closing date. For these and other reasons, committed financing is common for acquisitions. When an acquirer does not have available cash or borrow- ing capacity under existing financing arrange- ments, the alternative to committed financing is “best efforts” financing. Commitment Papers In transactions involving committed financing, the acquirer will obtain “commitment letter” from one or more lenders, which will be executed (or in certain cases countersigned by the acquirer, the lenders having submitted signed documents prior to the buyer submitting a bid) on or shortly before the date on which the definitive acquisi- tion agreement is executed. In the commitment letter, the lenders will agree to provide the financ- ing set forth therein, subject to the satisfaction or waiver of certain limited conditions. The com- mitment letter is accompanied by one or more term sheets and fee letters, and may also be accompanied by a securities engagement letter; these documents are referred to collectively as the “commitment papers” . In lieu of, or prior to, receiving a commitment letter, an acquirer may ask one or more poten-
US acquisition finance for both strategic (ie, corporate) and financial sponsor (including for LBOs) acquirers is typically arranged by US banks, international banks and/or non-bank lenders (in particular, direct lenders). In recent years, non-bank lenders have played an increas- ingly important role in a variety of US acquisi- tion financings. One key difference between US banks and non-bank lenders is that US banks are subject to more regulatory oversight. Such oversight increased following the 2008 financial crisis and created additional market opportuni- ties for non-bank lenders. 1.2 Corporates and LBOs Please see 1.1 Major Lender-Side Players . In the USA, a potential acquirer is not legally required to have “certain funds” or fully commit- ted financing at the time it makes a public offer to acquire a company nor at the time it enters into a definitive acquisition agreement. This is in contrast to the practice in the UK and other European jurisdictions, where fully committed financing is typically required prior to submit- ting a public offer. Nonetheless, it is common for acquirers to obtain committed acquisition financing. The seller of a business (or the board of direc- tors and management team of a public target company) usually requires a potential acquirer to obtain committed financing before it will permit the potential acquirer to proceed to advanced 2. Documentation 2.1 Governing Law Certain Funds
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