Companies based in the People’s Republic of China have been on an M&A spree. Several high-profile U.S. and European companies have already been targeted by Chinese acquirers. In a recent blog post, Ethan Klingsberg and Rob Gruszecki of Cleary Gottlieb Steen & Hamilton argue that these are unique transactions and that parties to these deals are “implement[ing] an array of innovative provisions in M&A agreements.”
One good idea, according to the authors, is to include reverse breakup fee provisions, which are common in private equity transactions. “Recent reverse breakup fees accepted by PRC buyers have ranged in magnitude from approximately 3 [percent] to 9 [percent] of the enterprise value of the transaction,” they note. These can be triggered not only on the Chinese company’s failure to perform obligations related to closing the deal, but also because the Committee on Foreign Investment in the United States didn’t clear the transaction or Chinese authorities didn’t grant approval.
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