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Friday, October 29, 2010
Topic: Legal Management Reference: Davidoff, Steven M. “How Innovations Spread in Deal-Making.” DealBook: http://dealbookblogs.nytimes.com/2010/08/18/how-innovations-spread-in-deal-making. I have been asked to review and comment upon several commercial transactions recently that involve real estate, technology, and gaming transactions. At the height of the downturn such requests were limited. I take it that it is a good sign to have new activity taking place and that positive things are being developed for the future. Reviewing some of the term sheets made me wonder if there have been any new innovations in deal-making in the last 18 months or so. Friday, October 29, 2010
Topic: Legal Management Reference: Davidoff, Steven M. “How Innovations Spread in Deal-Making.” DealBook: http://dealbookblogs.nytimes.com/2010/08/18/how-innovations-spread-in-deal-making. I have been asked to review and comment upon several commercial transactions recently that involve real estate, technology, and gaming transactions. At the height of the downturn such requests were limited. I take it that it is a good sign to have new activity taking place and that positive things are being developed for the future. Reviewing some of the term sheets made me wonder if there have been any new innovations in deal-making in the last 18 months or so. By necessity deal-making innovations are routinely generated in order to alter risk, limit liability, or to authorize a hammer in the event that certain things do not take place. At the highest corporate levels these innovations accelerate from transaction to transaction. Generally with smaller transactions, and with those without a financial disclosure or public securities overhang, the pace of innovation tends to be a little slower. However, these are not typical times and the major disruptions, bankruptcies, and foreclosures that are raging in the regional business markets have had an impact on deal-making innovation across the board. In the referenced article the commentator makes a similar observation. “The structure of private equity agreements is changing in revolutionary ways in response to the financial crisis.” The commentator points to the material adverse change provision in transactions where new language and concepts are changing the course of dealings between parties. Where there may have been a brief reference to material adverse change in the industry in the past, in today’s market the provisions are likely to be much more extensive. “Today the average M.A.C. clause has five to 10 carve-outs, and they are growing. The newest carve-outs are in response to the credit crisis.” You can expect the impact of innovations to affect other areas as well such as debt ratios, cash assets on hand, due diligence reimbursement fees, etc. Once certain approaches are taken in these areas, they become standard operating procedure in the next deal and the original thinking that helped to create the language initially is difficult to change even if the market conditions are no longer applicable to the same extent. These are things to consider as you evaluate new opportunities and the language referenced in contractual agreements is nothing like that of transactions from two years ago. Here the more things change; the more things are going to change. All the more reason to engage legal counsel earlier in the process than later. |