Cogs in the Machine – Negotiation Pressure and Deal Deadlines
By David Willbe, Senior Associate, Crowell & Moring
W
hen an inventor builds a machine, he makes sure that he knows how each of the parts work and how they
fit together. The more planning and preparation he puts into the machine, the more smoothly it operates when he switches it on. If the same kind of detailed planning and preparation are put into the legal administration of a company, then selling that company should be a much smoother process.
The
intention of this series of articles is to assist with that planning by looking at some of the cogs in the machine and providing some insight into what each one does.
Previous articles in this series have looked at cogs that are put in place earlier in a company’s life.
between the time when such a cog is put in place and the time that it first turns. A drag-along right, for example, will be inserted into a company’s articles of association at the time of a B or C round financing – and not be triggered until the investors and/or founders are selling out.
No less important, however, are the cogs in the machine that
are put
in last – the planning and preparation that management put into the major transactions in the life of their company.
Although these provisions are
all aimed at smoothing the process of a major fundraising or an exit sale, in many cases it will be some years
46 entrepreneurcountry
This article will consider a fundamental cog for the
smooth running of a transaction – planning to deal with negotiation pressure.
RedBox Ltd.
Certain founders of RedBox Ltd. wanted to sell their shares, and located a buyer. Once the sale process was already moving, market rumours started to circulate that the government was planning to announce changes to the tax regime. If the rumours were accurate, the selling founders would receive markedly higher tax bills on the sale of their shares in RedBox. Accordingly the selling founders set out to ensure that the deal was concluded by midnight on the day before the rumoured announcement. All of the paperwork was close to being ready by around midday on that date, and so the parties duly assembled in a meeting room to finalise and sign the agreements.
It was at this point that negotiation pressure took effect.
The selling
founders were the only party in that room that faced adverse consequences if the deal was not signed that day,
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