Blocker Agreement
The term “blocker agreement” may sound like something out of a spy movie, but it`s actually a legal term used in the world of mergers and acquisitions. In this article, we`ll discuss what a blocker agreement is, how it works, and why it`s important.
What is a Blocker Agreement?
A blocker agreement is a legal document that is often used in the context of mergers and acquisitions. It`s essentially a contract between the buyer and the seller that sets out certain terms and conditions that must be met before the sale can be completed.
The purpose of a blocker agreement is to give the buyer some degree of control over the seller`s actions during the pre-completion period. This is the time between when the sale is agreed upon and when it is actually completed. During this period, the seller still owns the business, and the buyer is essentially just a potential buyer.
In a typical blocker agreement, the seller agrees to certain restrictions and conditions that must be met before the sale can be completed. For example, the seller might agree not to enter into any new contracts or make any major investments during the pre-completion period. This is intended to prevent the seller from taking on any new liabilities or changing the value of the business.
How does a Blocker Agreement Work?
The way a blocker agreement works is fairly straightforward. Once the buyer and seller agree to the terms of the sale, they will usually sign a letter of intent (LOI). The LOI sets out the broad terms of the sale, including the price, the payment terms, and the conditions that must be met.
One of the conditions that may be included in the LOI is a requirement for the seller to sign a blocker agreement. This agreement will be drafted by the buyer`s legal team and will set out the specific restrictions and conditions that the seller must agree to.
Once the blocker agreement is signed, the seller will be bound by its terms until the sale is completed. This means that the seller will be restricted in what they can do with the business during the pre-completion period.
Why is a Blocker Agreement Important?
A blocker agreement is important because it helps to protect the buyer`s interests during the pre-completion period. Without a blocker agreement in place, the seller could potentially take on new liabilities or change the value of the business, which could have an impact on the sale price.
Additionally, a blocker agreement can help to prevent any last-minute surprises or complications that could derail the sale. By setting out the specific conditions that must be met before the sale can be completed, the blocker agreement helps to ensure that both parties are on the same page and that there are no surprises.
Conclusion
In conclusion, a blocker agreement is an important legal document that is often used in the context of mergers and acquisitions. It helps to protect the buyer`s interests during the pre-completion period and can help to prevent last-minute surprises or complications. If you`re involved in a merger or acquisition, it`s important to work with experienced legal professionals who can help you navigate the process and ensure that your interests are protected.