Tuniverse! decide it would be best to purchase the website following a hive down and enter into negotiations with You.fm. During these negotiations, Jamie Nelson completes the due diligence and sends it to Rawdon Pearce.
Subject: Due diligence (You.fm)
Date: 8 March 20–
To: Rawdon Pearce <email@example.com>
I’ve now completed the due diligence and it’s looking good (see attached). However, Tuniverse! will still need to protect itself from the risks involved in acquiring the newly formed business. The bottom line in mergers and acquisitions is caveat emptor (let the buyer beware – you’ll excuse a little legal Latin!).Assuming you want to go ahead with the purchase, the sales and purchase agreement (which I would be very pleased to draft for you) should include express contractual protection in the form of warranties and indemnities from the newly-formed company.We can seek security for a breach of any warranty or indemnity by insisting that the parent company (You.fm.) or any other third party provide a guarantee in respect of the seller’s obligations. Alternatively, we can draft the SPA to provide for Tuniverse! to retain part of the purchase price of the target after the completion (or closing) of the transaction and for this amount to be used to pay any successful claims under the warranties and indemnities.
We can anticipate that You.fm will want to limit its potential exposure to liability under the warranties and indemnities. This will typically include the insertion of provisions in the SPA excluding de minimis claims, meaning that Tuniverse! would not be able to claim for breach unless the claim exceeds a certain amount. You.fm will want to put a maximum cap on its total liability, and will probably want this to be set at the total consideration it receives under the SPA.
In order to protect the value of its investment, Tuniverse! will no doubt want to restrict the post-completion activities of the seller. The SPA will include a series of undertakings by You.fm to this effect. The standard restrictive covenants1 would include undertakings not to compete with the target company, solicit existing customers, suppliers or employees of the target and use or disclose confidential information about the target for a specified period within a specified area.
This is all quite standard, and I hope reasonably clear. Once I’ve had confirmation that you wish to go ahead with the purchase I’ll get to work on the SPA. In the meantime, happy reading (see due diligence report attached). Please do call me if you have any questions on any of the above points.
1 Also non-compete covenants