Learn how to avoid common M&A litigation pitfalls in carve-out transactions. This blog post unpacks a critical New York M&A case, revealing why precise contract drafting, especially for “ordinary course of business” clauses in carved-out segments, is vital for buyers. Discover actionable insights to minimize legal risks in your next lower middle market acquisition.
M&A Stories
June 11, 2025
Acquiring a carved-out segment of a larger business—whether it’s a specific division, product line, or a collection of assets like call centers—presents distinct challenges for buyers. A critical element in many acquisition agreements is the “ordinary course of business” provision, intended to ensure the target’s operations remain stable between a specified date (often the last fiscal year-end) and the deal’s closing. The subtlety, and often overlooked risk, in carve-outs lies in precisely defining which “business” must be conducted in the ordinary course. For the buyer’s protection, it should unequivocally refer to the carved-out segment, not the seller’s entire enterprise.
A recent New York appellate case underscores this precise point. The dispute arose from a seller’s sale of a carved-out segment comprising customer service call centers and their associated client contracts. After the transaction closed, the buyer initiated litigation, alleging that the seller had breached its promise to operate the business in the ordinary course by implementing a significant reduction in force within the acquired call center segment and by stalling advertising efforts.
The seller contended that such actions – reductions in force and advertising delays – were, in fact, routine practices for its business as a whole. Conversely, the buyer asserted that the specific call center segment it purchased had no historical precedent for such operational shifts. The New York appellate court, reviewing the matter, chose not to issue a summary judgment. It pointedly noted that the asset purchase agreement lacked a clear definition of what constituted “the business” for the purpose of the ordinary course provision. This ambiguity allowed the litigation to persist.
This case serves as a sharp reminder for even the most sophisticated M&A practitioners: boilerplate contractual provisions, particularly those pertaining to the ordinary course of business, demand careful customization when transitioning from a full enterprise acquisition to a carve-out. Had the buyer in this instance explicitly defined “business” within the ordinary course clause to refer solely to the call center carved-out segment, it likely would have avoided the protracted and costly litigation. Without such precise language, a seller can reasonably argue that “business” encompasses its broader corporate operations, creating a significant and preventable risk for the buyer.
See: Skyview Capital, LLC v. Conduent Business Servs., LLC, 2025 NY Slip Op 3291 (Appellate Division of the Supreme Court of New York, First Department 2025).
Thank you for reading this blog. If you have any questions, insights, or if you’d like to engage in a more detailed discussion on this matter, I invite you to reach out directly.
Feel free to send me an email. I value thoughtful discussions and am always open to connecting with business owners, management, as well as professionals who share an interest in the complexities of M&A law in lower middle market private target deals..
By John McCauley: I write about recent problems of buyers and sellers in lower middle market private target deals.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my books: Buying Established Business Assets: A Guide for Owners, https://www.amazon.com/dp/B09TJQ5CL5
and Advisors and Selling Established Business Assets: A Guide for Owners and Advisors, https://www.amazon.com/dp/B0BPTLZNRM
Legal Disclaimer
The blogs on this website are provided as a resource for general information for the public. The information on these web pages is not intended to serve as legal advice or as a guarantee, warranty or prediction regarding the outcome of any particular legal matter. The information on these web pages is subject to change at any time and may be incomplete and/or may contain errors. You should not rely on these pages without first consulting a qualified attorney.
Recent Comments