What Does a Mergers and Acquisitions Attorney Review in Your Deal?

The choice between an asset purchase, stock purchase, or merger structure is not a mere formality. This decision drives tax consequences, successor liability exposure, and the buyer's willingness to pay. In practice, the tax outcome often determines whether a deal closes at all. A stock sale may expose the seller to double taxation or create unwanted gain recognition; an asset sale shifts environmental or employment liabilities to the buyer, which the buyer will price into their offer. Courts and the IRS apply strict statutory tests to determine the character of a transaction, and there is little room for recharacterization after closing.

The purchase price is typically structured as cash at closing, seller financing, or earn-out provisions tied to post-closing performance. Earn-outs are common but contentious. Disputes arise when the buyer claims the target company underperformed post-closing, justifying a price reduction. New York courts have held that earn-out calculations must follow the explicit formula in the agreement; if the agreement is silent or ambiguous, the buyer cannot unilaterally adjust the calculation. This is where disputes most frequently arise. Counsel must draft earn-out language with surgical precision, including definitions of revenue, EBITDA, and adjustment mechanisms.

Most material transactions require antitrust review. If the combined entity would control a significant market share, the Federal Trade Commission or Department of Justice may challenge the deal. Parties must file a Premerger Notification Form with the FTC and provide detailed competitive information. The initial review period is 30 days; if the agencies issue a Second Request, the review extends to 30 additional days and requires extensive document production and testimony. Missing the filing deadline or providing incomplete information can delay closing by months and increase deal risk.

State attorneys general also scrutinize transactions in regulated industries, particularly healthcare. Hospital mergers and acquisitions face heightened antitrust scrutiny in New York because consolidation can reduce competition and increase patient costs. The New York Attorney General's office has blocked or conditioned several healthcare transactions in recent years. If your transaction involves healthcare providers, regulatory risk is not peripheral; it is central to deal feasibility.

The purchase agreement contains the seller's representations and warranties: statements about the target company's financial condition, contracts, litigation, compliance with law, and environmental status. These representations are the buyer's primary recourse if hidden liabilities emerge post-closing. The buyer will demand broad reps and lengthy survival periods (often 12 to 24 months), and the seller will push for narrow reps and short survival windows. This negotiation is where deal economics are truly decided.

Representation and warranty insurance has become standard in middle-market deals. The policy indemnifies the buyer (or seller) against breaches of reps that are discovered within the policy period, typically 3 to 6 years post-closing. The cost is usually 3 to 5 percent of the policy limit. While this shifts risk to an insurer rather than the seller, it also allows parties to close with less escrow and fewer disputes. From a practitioner's perspective, the policy language matters as much as the underlying reps; exclusions and sub-limits can leave real gaps in coverage.

Escrow arrangements secure the seller's indemnification obligations. A portion of the purchase price, typically 10 to 20 percent, is held in escrow for 12 to 24 months. If the buyer discovers a breach of reps, it can claim against the escrow. The escrow agreement must specify the claim procedure, dispute resolution, and release mechanics. Disputes over escrow release are common in New York commercial courts, particularly when the buyer asserts last-minute claims to avoid releasing funds.

Debt financing is a material closing condition in most acquisitions. The buyer obtains a commitment from a lender, but the commitment is conditional on satisfactory due diligence, stable market conditions, and the target company meeting certain financial covenants. If the lender backs out, the buyer may be unable to close. The seller faces the risk that the deal collapses after signing, and the target company's market position has deteriorated.

Many purchase agreements include a material adverse change (MAC) clause, which allows the buyer to terminate if the target company's business suffers a material decline. MAC clauses are notoriously difficult to enforce. Delaware courts have held that a MAC must be substantial and durable, not temporary or cyclical. New York courts apply a similar standard, requiring the buyer to prove that the adverse change is material and not within ordinary business risk. A single bad quarter rarely triggers a MAC; a sustained deterioration in revenue or loss of a major customer might. The burden is on the buyer, and courts are skeptical of buyer attempts to escape deals on MAC grounds.

Before signing a purchase agreement, counsel must advise the client on several critical choices. First, determine whether the transaction should be structured as a stock or asset sale based on tax and liability considerations. Second, assess regulatory risk early; if antitrust clearance is uncertain, negotiate a termination right if regulatory approval is not obtained within a specified period. Third, negotiate the rep and warranty package with precision; do not accept buyer-drafted reps without careful review and modification. Fourth, decide whether representation and warranty insurance is cost-justified for your deal size and risk profile.

The mergers and acquisitions process also requires attention to financing conditions and MAC clauses. If you are the seller, push for a financing condition with a specific outside date; if financing is not obtained by that date, the buyer must close or pay a reverse termination fee. If you are the buyer, ensure that the MAC clause is defined narrowly enough to give you a realistic exit if conditions truly deteriorate. These provisions are often overlooked until a deal is in trouble, at which point negotiating a fix is far more difficult.

The post-signing period demands rigorous project management. Regulatory filings must be submitted on time; due diligence requests must be answered fully and accurately; closing conditions must be monitored. A single missed deadline or incomplete disclosure can delay closing and increase dispute risk. In New York commercial litigation, parties frequently clash over whether closing conditions have been satisfied or waived. Courts interpret closing conditions strictly; ambiguity is resolved against the party seeking to rely on the condition. Plan for this reality by documenting all conditions clearly and obtaining written waivers when appropriate.