Private Equity Newsletter

April 06, 2017

This edition of Dechert’s Private Equity Newsletter reviews recent developments in private equity worldwide, including:

  • Like Bigfoot, a Clear and Settled Definition of "Consequential Damages" Remains Elusive 
  • Bridging the Consideration Gap 
  • Recent Developments in Acquisition Finance 
  • Purchase Price Adjustment Disputes: Drafters Beware 
  • In Case You Missed It: US Data, Cybersecurity and Privacy Issues in M&A Transactions, A Webinar Presented by Dechert LLP
  • In Case You Missed It: Dechert's 3rd Annual Permanent Capital Summit


Like Bigfoot, a Clear and Settled Definition of “Consequential Damages” Remains Elusive

A recent decision from the Delaware Chancery Court adds a twenty-first century interpretation to the common law doctrine of consequential damages which has roots reaching back to English contract law. This decision highlights another reason why practitioners should carefully consider contractual provisions drafted with the intent of preserving or waiving claims for consequential damages. It also fuels the debate as to what the term "consequential damages" actually means when used in M&A transactions. 

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Bridging the Consideration Gap

As recently as March 15, 2017 (Financial Times), KPMG explained that total market capacity for M&A will increase by 17% in 2017 as companies continue to pay down debt and bolster cash reserves. As a result, sell-side valuations of assets look set to continue to increase. This article explores some of the tools being used by buyers to ‘bridge the gap’ between sell-side valuations and the amount of up-front cash buyers are willing to put at risk in acquiring assets.

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Recent Developments in Acquisition Finance

When a portfolio company underperforms, an equity sponsor will want to assess the degree of negotiating leverage the company’s lenders have against the company under the circumstances, which can play a significant role in defining the terms of waivers or amendments or of an eventual workout to be sought with the lenders. Strategic options available to a sponsor will depend, among other things, on the degree of leverage, or perceived leverage, held by lenders. Two recent court decisions may impact this balance and the relative strength of lenders versus their distressed borrowers. 

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Purchase Price Adjustment Disputes: Drafters Beware

It is common practice for purchase agreements in private company M&A transactions to contain one set of rules to determine and resolve disputes regarding a post-closing purchase price adjustment and a separate, often vastly different, regime for dealing with breaches of representations and warranties. The recent Delaware Court of Chancery decision in Chicago Bridge & Iron Company N.V. v. Westinghouse Electric Company LLC and WSW Acquisition Co., LLC (Del. Ch. December 5, 2016) highlights the need to carefully consider how these separate regimes interrelate when it comes to overlapping subject matter, particularly GAAP compliance, to avoid unintended consequences. 

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In Case You Missed It: US Data, Cybersecurity and Privacy Issues in M&A Transactions, A Webinar Presented by Dechert LLP

When evaluating a potential target company, buyers/investors often underestimate the breadth and depth of diligence that should be done with respect to data privacy and cybersecurity matters. The tendency to accept vague, high-level responses from the target company without more in-depth follow up can create unnecessary risks in the acquisition. On March 23, 2017, members of Dechert’s Data Privacy and Cybersecurity Group hosted a webinar entitled “US Data, Cybersecurity and Privacy Issues in M&A Transactions.” The webinar provided an overview of tips for conducting diligence, the role of big data in business, the key legal risks associated with the receipt of data and how to manage such risks via reps and warranties. Members of the group also provided an in-depth look at: (i) how buyers can make sure they are receiving the privacy- and cybersecurity-related documents they really need from target companies; (ii) ways to evaluate whether a target company is actually implementing its stated policies and procedures; and (iii) special considerations related to HIPAA compliance diligence and the receipt of health information under HIPAA. 

Download the presentation and listen to a recording here »


In Case You Missed It: Dechert's 3rd Annual Permanent Capital Summit

Dechert’s Permanent Capital Summit in New York brought together fund sponsors and asset managers to consider the impact of a shifting financial and regulatory environment on the formation and investment of permanent capital. The program featured panels on capital raising trends, perspectives on middle-market lending and risk retention. Industry leaders from Ares Management, FS Investments, Inland Real Estate Investment Corporation, KKR, Oak Hill Advisors/OHA Investment Corporation, PennantPark Investment Advisers, Sumitomo Mitsui Banking Corporation, Tennenbaum Capital Partners, and THL Credit, in addition to Dechert, shared their insights and outlook for the permanent capital industry. 

Download the key takeaways »

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