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The M&A Case Study Experiment - Part 1
- Thread starter Jaysen
- Start date
- Why do you think Digion wants to buy Immersive?
- Firstly, this can support Digion’s ambitions on expanding geographically and particularly into the European market given Digion is only known to be present in the UK, US and Canada.
- Secondly, to acquire valuable employees and leverage their years of experience to build their existing software– Immersive co-founders Leon Alexander and Maria May
- Thirdly, to acquire valuable IP.
- How would you advise Elena handle the situation with Tristan? Elena may consider including a non-solicitation clause in Tristan’s new employee contract to prohibit Tristan from poaching employees. This should be carefully drafted to ensure it is reasonable and does not impact on the business’ transition after the acquisition.
- What is the purpose of Clause 5 in Document 3? Clause 5 sets out the condition precedents that have to be satisfied before the acquisition can take place.
- In Clause 7, note the phrase, 'The Seller’s liability under the warranties and indemnities shall be subject to limitations.' Suppose you were the lawyers acting for the Seller, what could you do to limit the Seller's liabilities? Why is this important? The Seller may attempt to negotiate caps on liability for example a de maximis cap which would cap the maximum amount that can be claimed for particular breaches of contract. This is important as it prevents the Seller from being liable for unforeseen circumstances like natural disasters.
- Why could it be important to Digion that 'the courts of England have exclusive jurisdiction to settle any dispute'?
- Digion is headquartered in London so would be ideal to have any legal issues arising out of this contractual relationship to be settled in their home jurisdiction. More certainty and less legal costs.
- Digion Ltd may want to acquire Immersive Ltd as presents an opportunity to introduce another dimension to it’s core business. This is a common growth strategy for technology companies. For example, Facebook recently purchased Giphy, which is a popular GIF library, to integrate into it’s social media platform. Thus, instead of outsourcing an add-on feature of it’s core business, Digion purchase of Immersive may enable it to cut costs and integrate Immersive’s product into its business.
Additionally, Digion has embarked on international expansion. As Immersive is based in Germany, the acquisition will allow Digion to inherit and build on an established international base.
- Elena may seek to mitigate against Tristan’s action by entering into an NDA with Immersive to govern pre-acquisition/closing discussions and include a non-solicitation clause. This will bound Immersive and its employees/representatives from poaching Digion employees during the course of discussions and a certain period after the NDA expires and/or discussions end.
- The “Conditions” clause allows Digion, as the buyer, to protect itself from entering into a bad deal or making a bad acquisition. Imposing certain events before an acquisition can be complete allows the buyer to gain the full insight into its purchase and may give them bargaining power during negotiations. For example, due diligence into Immersive’s business may uncover an aspect of the business which is underperforming and incurring losses. This information enables Digion to adjust it’s offer or restructure the deal and only purchase certain pieces of the business.
Additionally it also ensures certain formalities have been completed that may be an obstacle to the deal such as shareholder approval.
- If I was the seller’s counsel I would limit their liability to direct losses in connection to the breach of the clause.
I would limit their indemnities to a certain amount.
I would limit the claim period to a certain time frame – 1 to 2 years after the closing of the deal to ensure any liabilities are of a direct result of the seller’s breach.
- As Digion is headquartered in London, it may be more comfortable and familiar to give English courts exclusive jurisdiction. This is because they are more likely to be familiar with the law and the approach of the courts in case of any potential conflict.
- Feb 17, 2018
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Wow, I'm really impressed by the quality and range of responses here. A huge shoutout to so many of you for pushing yourself to write answers to these questions.
My email with the mock answers will be in your inbox today.
I'm going to extend the deadline for one more day for any more participants who didn't previously see this. If you submit your answer by the end of today, you'll still receive an email with the answers.
My email with the mock answers will be in your inbox today.
I'm going to extend the deadline for one more day for any more participants who didn't previously see this. If you submit your answer by the end of today, you'll still receive an email with the answers.
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Why do you think Digion wants to buy Immersive?
Digion's acquisition of Immersive makes business sense as it weeds out direct competition in the game development sector. Digion can also leverage on Immersive's popularity and branding amongst game software developers, as well as their co-founder's experience to improve on their product offerings. With plans of expansion, fresh funding from venture capital firms also allows for rapid scaling, as seen in their recent acquisitions, in order to quickly capture market share.
How would you advise Elena handle the situation with Tristan?
Elena may rely on the restrictive covenant in Clause 7.3 to prevent Tristan from poaching her employees. Even so, I would still advise Elena to get Tristan to sign an employee non-disclosure and non-compete agreements if he were to join Digion, as this would create legal obligations on him to protect Digion's interests. Nonetheless, enforcement of these agreements may still be tricky and costly to litigate. As such, she would be better off not hiring him if basic trust is not possible so as to avoid future potential disputes.
What is the purpose of Clause 5 in Document 3?
Clause 5 details the conditions for the completion of the share purchase agreement between both parties. If any of these are breached or unfulfilled, the buyer/seller may choose to not proceed with the purchase/sale.
In Clause 7, note the phrase, 'The Seller’s liability under the warranties and indemnities shall be subject to limitations.' Suppose you were the lawyers acting for the Seller, what could you do to limit the Seller's liabilities? Why is this important?
I would seek to insert clauses that specifies the extent of the liability for the identified warranties and indemnities, and also state a cap on the reasonable sum of damages for those that are foreseeable.
Why could it be important to Digion that 'the courts of England have exclusive jurisdiction to settle any dispute'?
Digion is headquartered in London so being able to rely on English law to give legal effect to its contractual rights is crucial for protecting its business interests. Furthermore, as a multinational company dealing with many companies across different jurisdictions, limiting jurisdiction to the courts of England to govern its disputes helps to avoid ambiguity and provides much certainty in the event of potential litigation.
Digion's acquisition of Immersive makes business sense as it weeds out direct competition in the game development sector. Digion can also leverage on Immersive's popularity and branding amongst game software developers, as well as their co-founder's experience to improve on their product offerings. With plans of expansion, fresh funding from venture capital firms also allows for rapid scaling, as seen in their recent acquisitions, in order to quickly capture market share.
How would you advise Elena handle the situation with Tristan?
Elena may rely on the restrictive covenant in Clause 7.3 to prevent Tristan from poaching her employees. Even so, I would still advise Elena to get Tristan to sign an employee non-disclosure and non-compete agreements if he were to join Digion, as this would create legal obligations on him to protect Digion's interests. Nonetheless, enforcement of these agreements may still be tricky and costly to litigate. As such, she would be better off not hiring him if basic trust is not possible so as to avoid future potential disputes.
What is the purpose of Clause 5 in Document 3?
Clause 5 details the conditions for the completion of the share purchase agreement between both parties. If any of these are breached or unfulfilled, the buyer/seller may choose to not proceed with the purchase/sale.
In Clause 7, note the phrase, 'The Seller’s liability under the warranties and indemnities shall be subject to limitations.' Suppose you were the lawyers acting for the Seller, what could you do to limit the Seller's liabilities? Why is this important?
I would seek to insert clauses that specifies the extent of the liability for the identified warranties and indemnities, and also state a cap on the reasonable sum of damages for those that are foreseeable.
Why could it be important to Digion that 'the courts of England have exclusive jurisdiction to settle any dispute'?
Digion is headquartered in London so being able to rely on English law to give legal effect to its contractual rights is crucial for protecting its business interests. Furthermore, as a multinational company dealing with many companies across different jurisdictions, limiting jurisdiction to the courts of England to govern its disputes helps to avoid ambiguity and provides much certainty in the event of potential litigation.
- Why do you think Digion wants to buy Immersive?
Like to reach into new markets. Already expanded into Canada, the US and the UK and buying Immersive, a Frankfurt-based company will allow it to reach customers in Germany as well. Plus, Immersive has a strong client base amongst game developers.
Gain expertise of key individuals - Leon Alexander and Maria May, who has years of experience in game server hosting.
- How would you advise Elena handle the situation with Tristan?
Negotiate a non-compete clause as well as a non-solicitation clause.
- What is the purpose of Clause 5 in Document 3?
Clause 5 acts as a condition precedent for the share purchase to go through – this is to ensure that certain conditions favourable to the parties must be satisfied, or waived, before the acquisition can be effective.
- In Clause 7, note the phrase, 'The Seller’s liability under the warranties and indemnities shall be subject to limitations.' Suppose you were the lawyers acting for the Seller, what could you do to limit the Seller's liabilities? Why is this important?
- Why could it be important to Digion that 'the courts of England have exclusive jurisdiction to settle any dispute'?
Perhaps Digion is headquartered in London and thus is most familiar with English laws. In the event of any disputes, it would be favourable for it to be settled in familiar waters.
Why do you think Digion wants to buy Immersive?
Buying Immersive can help Digion expand into the EU faster than organic growth. Digion is interested in Leon Alexander and Maria May. This acqui-hire can bring talent to Digion. It can also reduce competition as Immersive is popular among game developers.
How would you advise Elena handle the situation with Tristan?
Elena can enter into an NDA containing a non-solicitation clause with Immersive. To better mitigate risk, Elena can choose not to hire Tristan because of his behaviour.
What is the purpose of Clause 5 in Document 3?
Clause 5 provides that certain parts of the contract will only come into force if and when agreed conditions are met. This is to prevent the buyer entering into a bad deal if the seller do not meet certain conditions.
In Clause 7, note the phrase, 'The Seller’s liability under the warranties and indemnities shall be subject to limitations.' Suppose you were the lawyers acting for the Seller, what could you do to limit the Seller's liabilities? Why is this important?
I would ask to insert clauses to specify the limitations of the Seller's liabilities.
Why could it be important to Digion that 'the courts of England have exclusive jurisdiction to settle any dispute'?
Digion's headquarter is in London so the company is more familiar with English law. It can also save Digion time and cost as disputes will be resolved in their home jurisdiction.
Buying Immersive can help Digion expand into the EU faster than organic growth. Digion is interested in Leon Alexander and Maria May. This acqui-hire can bring talent to Digion. It can also reduce competition as Immersive is popular among game developers.
How would you advise Elena handle the situation with Tristan?
Elena can enter into an NDA containing a non-solicitation clause with Immersive. To better mitigate risk, Elena can choose not to hire Tristan because of his behaviour.
What is the purpose of Clause 5 in Document 3?
Clause 5 provides that certain parts of the contract will only come into force if and when agreed conditions are met. This is to prevent the buyer entering into a bad deal if the seller do not meet certain conditions.
In Clause 7, note the phrase, 'The Seller’s liability under the warranties and indemnities shall be subject to limitations.' Suppose you were the lawyers acting for the Seller, what could you do to limit the Seller's liabilities? Why is this important?
I would ask to insert clauses to specify the limitations of the Seller's liabilities.
Why could it be important to Digion that 'the courts of England have exclusive jurisdiction to settle any dispute'?
Digion's headquarter is in London so the company is more familiar with English law. It can also save Digion time and cost as disputes will be resolved in their home jurisdiction.
1. Why do you think Digion wants to buy Immersive?
First, the purchase of Immersive provides Digion with opportunities of business growth. Digion seeks to make online game development more efficient for developers. Immersive’s popularity among game developers can assist with that goal. Digion can also take advantage of Immersive’s two cofounders’s years of experience in game server hosting.
Secondly, the purchase of Immersive aligns with Digion’s global strategy. It seems that Digion is trying to establish a global presence as shown by its expansion across Canada., the US and the UK. Immersive is Frankfurt-based.
2. How would you advise Elena handle the situation with Tristan?
Elena could not refer to Clause 7.3 because of two reasons. First, according to Clause 1.2, Clause 7.3 is not intended to be legally binding on the Parties. Secondly, ‘the Business’ in Clause 7.3 refers only to the business of Immersive, not extending to Digion.
In that situation, Elena needs to specifically include restrictive covenants restraint of trade clauses such as non-compete clauses, non-solicitation clauses, no poaching and recruitment clauses and confidentiality clauses.
3. What is the purpose of Clause 5 in Document 3?
Clause 5 sets out conditions precedent to completion. A condition precedent in a SPA is used to safeguard the position and minimize the risk of at least one party (usually the purchaser but sometimes also the seller). It provides the relevant party with the possibility to “unwind” the transaction and escape the performance thereof in case one or more events have not occurred or conditions have not been met.
4. In Clause 7, note the phrase, 'The Seller’s liability under the warranties and indemnities shall be subject to limitations.' Suppose you were the lawyers acting for the Seller, what could you do to limit the Seller's liabilities? Why is this important?
I would include the following limitation of liability clause when drafting:
Claim threshold. The seller’s liability is often capped either at a specified sum or by reference to a percentage of the purchase price.
Double recovery. The purchaser’s ability to recover twice in relation to the same event is typically excluded from the indemnity.
Time limitations. The purchaser is often required to notify the seller of the occurrence of an event giving rise to liability (or potential liability) under the indemnity provision within a certain period of the purchaser becoming aware of that event.
Change in law. Particularly in the context of tax covenants, it is common practice for liability arising as a result of a change in law or tax rates to be excluded from the indemnity.
In the absence of a limitation of liability, a party is liable and responsible for all of the reasonably foreseeable damages that it causes the other party. That includes any damages that a reasonable third-party would expect (generally known as direct damages) and all of the damages that the parties’ themselves would reasonably contemplate or expect given their knowledge of the deal (indirect damages). Given the potential risks, parties routinely try to limit their liability with liability caps and disclaimers. Limitation of liability clauses are an important contractual tool designed to manage overall risk by limiting a party’s potential liability for damages.
5. Why could it be important to Digion that 'the courts of England have exclusive jurisdiction to settle any dispute'?
This is because the SPA is made between parties based in different states or countries. Digion is headquartered in London while Immersive is Frankfurt-based. The exclusive jurisdiction clause provides practical benefit for Digion such as the increased certainty with respect to the legal rules apply to any dispute, lowered cost of an action, convenience with respect to the location of the court and the location of any witnesses and evidence. The provision saves the parties further disputes over which court to take their issues to, potentially reducing delay and expense of litigation.
First, the purchase of Immersive provides Digion with opportunities of business growth. Digion seeks to make online game development more efficient for developers. Immersive’s popularity among game developers can assist with that goal. Digion can also take advantage of Immersive’s two cofounders’s years of experience in game server hosting.
Secondly, the purchase of Immersive aligns with Digion’s global strategy. It seems that Digion is trying to establish a global presence as shown by its expansion across Canada., the US and the UK. Immersive is Frankfurt-based.
2. How would you advise Elena handle the situation with Tristan?
Elena could not refer to Clause 7.3 because of two reasons. First, according to Clause 1.2, Clause 7.3 is not intended to be legally binding on the Parties. Secondly, ‘the Business’ in Clause 7.3 refers only to the business of Immersive, not extending to Digion.
In that situation, Elena needs to specifically include restrictive covenants restraint of trade clauses such as non-compete clauses, non-solicitation clauses, no poaching and recruitment clauses and confidentiality clauses.
3. What is the purpose of Clause 5 in Document 3?
Clause 5 sets out conditions precedent to completion. A condition precedent in a SPA is used to safeguard the position and minimize the risk of at least one party (usually the purchaser but sometimes also the seller). It provides the relevant party with the possibility to “unwind” the transaction and escape the performance thereof in case one or more events have not occurred or conditions have not been met.
4. In Clause 7, note the phrase, 'The Seller’s liability under the warranties and indemnities shall be subject to limitations.' Suppose you were the lawyers acting for the Seller, what could you do to limit the Seller's liabilities? Why is this important?
I would include the following limitation of liability clause when drafting:
Claim threshold. The seller’s liability is often capped either at a specified sum or by reference to a percentage of the purchase price.
Double recovery. The purchaser’s ability to recover twice in relation to the same event is typically excluded from the indemnity.
Time limitations. The purchaser is often required to notify the seller of the occurrence of an event giving rise to liability (or potential liability) under the indemnity provision within a certain period of the purchaser becoming aware of that event.
Change in law. Particularly in the context of tax covenants, it is common practice for liability arising as a result of a change in law or tax rates to be excluded from the indemnity.
In the absence of a limitation of liability, a party is liable and responsible for all of the reasonably foreseeable damages that it causes the other party. That includes any damages that a reasonable third-party would expect (generally known as direct damages) and all of the damages that the parties’ themselves would reasonably contemplate or expect given their knowledge of the deal (indirect damages). Given the potential risks, parties routinely try to limit their liability with liability caps and disclaimers. Limitation of liability clauses are an important contractual tool designed to manage overall risk by limiting a party’s potential liability for damages.
5. Why could it be important to Digion that 'the courts of England have exclusive jurisdiction to settle any dispute'?
This is because the SPA is made between parties based in different states or countries. Digion is headquartered in London while Immersive is Frankfurt-based. The exclusive jurisdiction clause provides practical benefit for Digion such as the increased certainty with respect to the legal rules apply to any dispute, lowered cost of an action, convenience with respect to the location of the court and the location of any witnesses and evidence. The provision saves the parties further disputes over which court to take their issues to, potentially reducing delay and expense of litigation.
Q1
- streamlines and consolidates downstream markets in allowing developers to make games that support a substantial number of players and huge environments. Note: Digion has patented cloud technology software that allows developers to make games but they do not own software to help developers host multiplayer servers.
- achieves economies of scale in reducing R&D efforts through knowledge acquisition and IP acquisition of Immersive Ltd
- ultimately captures new opportunities for growth for Digion through vertical integration
Q2
Convince Elena to keep Tristan for now as he is a key asset, being a vice-president but concedes accepting Tristan means his contract will include more control clauses
- insert a unilateral non-solicitation clause in Tristan’s employment contract with Digion + relevant non-solicitation / non-complete clauses in SPA AND an NDA specifying this during discussions of a potential transaction during this period
- include a 6-12 month look-back period (i.e., time starts running against him prior to solicitations or hiring) of former employees
- include a second carveout to include all of Digion’s current employees, to start running when Digion start becoming aware of such solicitations, in connection with its evaluation of a potential transaction w/ Immersive Ltd
Q3
Clause 5 are condition precedents. The purpose of Clause 5 is to provide stipulations that Immersive Ltd must satisfy before any deal can proceed. Failure to satisfy any of Clause 5’s sub-clauses means Digion can walk away without suffering loss or liability.
Q4
If I were to represent Immersive Ltd as its lawyer, ways I could limit its liability include:
(a) include a disclose letter process so that Digion enters the deal knowing some of Immersive Ltd’s liabilities are known to both parties, reducing the risk Digion can lodge a claim post-completion
(b) insert a clause on a time limit for making claims IF a warranty or indemnity breach was found
(c) cap on the amount claimed IF Digion was successful in establishing its existence
Q5
- Homebase in advising English law which means implications in the wording used (i.e., reasonable commercial efforts vs best endeavours) in the SPA are clear and known
- “exclusive jurisdiction” also adds extra weight in finding favour that English law and English courts would hear any eventual dispute
- streamlines and consolidates downstream markets in allowing developers to make games that support a substantial number of players and huge environments. Note: Digion has patented cloud technology software that allows developers to make games but they do not own software to help developers host multiplayer servers.
- achieves economies of scale in reducing R&D efforts through knowledge acquisition and IP acquisition of Immersive Ltd
- ultimately captures new opportunities for growth for Digion through vertical integration
Q2
Convince Elena to keep Tristan for now as he is a key asset, being a vice-president but concedes accepting Tristan means his contract will include more control clauses
- insert a unilateral non-solicitation clause in Tristan’s employment contract with Digion + relevant non-solicitation / non-complete clauses in SPA AND an NDA specifying this during discussions of a potential transaction during this period
- include a 6-12 month look-back period (i.e., time starts running against him prior to solicitations or hiring) of former employees
- include a second carveout to include all of Digion’s current employees, to start running when Digion start becoming aware of such solicitations, in connection with its evaluation of a potential transaction w/ Immersive Ltd
Q3
Clause 5 are condition precedents. The purpose of Clause 5 is to provide stipulations that Immersive Ltd must satisfy before any deal can proceed. Failure to satisfy any of Clause 5’s sub-clauses means Digion can walk away without suffering loss or liability.
Q4
If I were to represent Immersive Ltd as its lawyer, ways I could limit its liability include:
(a) include a disclose letter process so that Digion enters the deal knowing some of Immersive Ltd’s liabilities are known to both parties, reducing the risk Digion can lodge a claim post-completion
(b) insert a clause on a time limit for making claims IF a warranty or indemnity breach was found
(c) cap on the amount claimed IF Digion was successful in establishing its existence
Q5
- Homebase in advising English law which means implications in the wording used (i.e., reasonable commercial efforts vs best endeavours) in the SPA are clear and known
- “exclusive jurisdiction” also adds extra weight in finding favour that English law and English courts would hear any eventual dispute
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- Feb 17, 2018
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Hey Asil! It's one off for now, but we'll still send the answers to anyone who posts an attempt in this thread
Ok thank you for this.Hey Asil! It's one off for now, but we'll still send the answers to anyone who posts an attempt in this thread
- Feb 17, 2018
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Hi Jaysen,
I have an interview coming up for a case study. Could I still attempt this mock case study and receive feedback even though the date has passed?
Hi @Erin @Jaysen can I please get the answers sent to me? Here's my attempt:Hey Asil! It's one off for now, but we'll still send the answers to anyone who posts an attempt in this thread
Q1: To expand into foreign markets, utilise Immersive Tech's IP, and make use of the expertise of Immersive Tech's founders.
Q2: Clause 7.3 prohibits Trestan from poaching employees. The company can internally incentivise employees through benefits.
Q3: To ensure that the situation post-acquiring remains profitable.
Q4: Limiting liability through clearly defining liability, limiting the amount in case of a breach, and providing disclosures (Warranties and indemnities) limiting to foreseen circumstances.
Q5: certainty of laws applicable, lesser resources to be employed.
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Hi Jaysen, I'm late to the party. Thank you for the exercise, it is incredibly helpful! May I know if it is possible to get a copy of the answer?
- Feb 17, 2018
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Absolutely. We're still sending out the answers to anyone who submits an attempt in this thread. Please have a go first!
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