Everything seemed finalized. The buyer spent weeks doing due diligence, advisers were busy, the purchase agreement was practically ready and the champagne was even cold. Then suddenly silence. No green light, no signature, but instead a short message: 'We are abandoning the acquisition after all.'
This column was written by Kelly Both and Iris Brand, both of Ten Holter Noordam advocaten.
This is not only disappointing, but also costly. After all, accountants, lawyers and tax specialists have already been paid, data rooms set up and hours invested by the in-house team. The question then hangs in the air: after all, who pays that bill if the deal fails?
"Nothing has been signed, right?
Many entrepreneurs think that without a signature there are no obligations either. Yet legally that is not always true. Even in the phase before signing the purchase agreement - the so-called pre-contractual phase - there are rules of the game. It is not so much (only) the final signature that counts, but also the behavior and intentions of the parties play an important role. Even a seemingly innocent handshake can be seen as sealing a deal even though nothing is legally fixed yet.
Completely flattening the legal side: anyone who has gone so far in the negotiations that the other party could trust that the deal would be completed cannot just drop out. If there was no problem and thus indeed the champagne was already cold, then "changing one's mind" is rarely a good (enough) excuse.
If a party does walk away at that time and with an argument of that caliber, it may be liable for certain costs incurred by the other party. Think, for example, of consultancy costs or missed opportunities by dealing specifically with a certain (withdrawing) party. Whether that damage should then actually be compensated depends on the circumstances of that specific acquisition process.
Changing your mind is allowed, but not carelessly
So does that mean a buyer may never change his or her mind?
Of course not!
New circumstances, changed market conditions - so-called unforeseen circumstances - or internal strategic choices can be reasons to quit. But how you stop makes all the difference: those who negotiate intensively for months, demand exclusivity and have contracts drawn up cannot, as a rule, pull the plug "just because it doesn't feel right.
Wise lessons for buyer and seller
So be aware as both buyer and seller that:
1) A deal can fall apart.
Between 70% and 80% of takeovers fail before the finish line. So the fact that a deal can fail is not scaremongering, but more everyday practice. Every entrepreneur can face it.
2) It is important to make good and clear agreements even in the negotiation phase and to record them (or have them recorded).
Consider, for example, a letter of intent ("LOI"). State in it what is and is not binding, but also what happens if a deal does not go through.
3) Openness and transparency can be part of the strategy.
Are there doubts about the deal or signals that the deal is faltering? Discuss with a (legal) adviser whether this should be shared with the other party and, if so, how. Sometimes the timing of the communication is at least as important as the message itself.
4) Informal communication can do more harm than good.
A light-hearted WhatsApp message that reads, "We're out!" or "Great that we're one step closer!" can make the other party assume that a deal has been reached. Therefore, be careful with such wording. The more informal the contact, the faster a legal risk arises.
Serious talks, serious consequences
No signature yet does not automatically mean that there are no mutual obligations. A serious acquisition process is not a non-committal exploration, but a process with financial and legal consequences.
Good entrepreneurship is thinking ahead - not only about what happens if a deal goes through, but also about what happens and should happen if it does not.
