US vs UK Private M&A – Two Agreements Divided By A Common Language?

The two legal systems that most often govern cross-border private M&A transactions are US (most commonly Delaware) law and English law. To the untrained eye, acquisition and sale agreements governed under either system may appear very similar, and differences are classified as "form over substance." There are, however, a handful of material differences in approach and legal ramifications that affect corporate transaction structuring and liability exposure that seasoned M&A practitioners should be familiar with. These include:

Agreements to agree; deeds: In Delaware, an agreement to agree may be legally binding and enforceable. When parties execute a letter of intent in connection with an acquisition, they enter into a binding agreement to negotiate in good faith the terms set out in the letter. All transaction agreements are executed in a universal way, which does not require witnesses or compliance with special procedures in order to be enforceable. In the UK, an agreement to agree is prima facie not legally binding and unenforceable unless an obligation is sufficiently certain, i.e., if it is possible to ascertain by objective criteria exactly what each party is required to do to comply with the obligation. There is no positive obligation to negotiate in good faith. In addition, certain acquisition documents are usually executed as deeds instead of simple agreements - usually when there is no clear consideration or in order to extend the statute of limitations governing the document from six to 12 years. Importantly, deeds are executed differently to simple agreements. A deed must be executed in the presence of a witness and, if executed electronically, in compliance with the "Mercury rule," which means that the final version of the deed must be circulated to the signatories (not separately from the signature pages) and the signed signature page(s) must be scanned and returned together with the entire deed in order for the deed to be deemed properly executed. Merger vs. SPA structures: Acquisitions of private Delaware corporations are most commonly structured as triangular mergers whereby the acquiring company forms a new acquisition subsidiary that merges with the target company. No individual stockholder of the seller has to be a party to the merger agreement. Such a merger structure does not exist in the UK. Acquisitions of UK private companies are generally structured as share purchases (undertaken by way of a share purchase agreement) whereby the buyer agrees to purchase all of the issued shares of the target company directly from selling shareholders. Purchase price adjustment vs. "locked box" mechanism: Acquisition agreements governed by Delaware law often use purchase price adjustment mechanisms in order to "true up" working capital and other financial benchmarks based on estimated financial statements, which are then trued-up following closing based on actual updated financial statements of the target company prepared following closing. Acquisition...

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