MORE PRIVATE M&A DEALS INCLUDE ATTORNEY-CLIENT PRIVILEGE CLAUSES

 

Boardroom

Attorney-client privilege assignment clauses are showing up in more and more deal documents involving the acquisition of private companies.

These relatively new clauses seek to assign the attorney-client privilege relating to deal negotiations to shareholders of the target companies or their representatives. The provisions are important to ensure that the shareholders retain their right to privileged communications after the deal closes.

It’s less of an issue when public companies are acquired since their shareholders are unlikely to be sued over the purchase.

Disclosure of the communications occurring during the deal “can obviously have a dramatic impact on post-closing indemnification claims and other post-closing disputes” between the buyer and the seller, Jonathan Corsico, a Washington-based partner at Gibson, Dunn & Crutcher LLP, told Bloomberg BNA in an e-mail.

Parties that fail to resolve this issue in their merger agreements can end up with “counter-intuitive results,” he said.

Sellers of private companies started to push for attorney-client privilege assignment provisions in deal documents after a 2013 Delaware Chancery Court ruling—Great Hill Equity Partners IV LP v. SIG Growth Equity Fund I LLP.

In that decision, the court held that absent a contractual provision that states otherwise, the privilege over the seller's pre-merger communications, including those related to the deal negotiations, are transferred to the surviving corporation.

However, while a growing number of private-company deals are including such provisions, there appears to be no consensus as to how they should be drafted, according to a recent white paper by SRS Acquiom, which provides services for shareholders in private merger and acquisition deals.

Read more about this developing trend here.