Explore the legal repercussions of a breach of confidentiality in an M&A deal. Learn from the Cargotec Corporation v. Logan Industries case and the potential pitfalls sellers face when sharing sensitive information with potential buyers.
M&A Stories
January 8, 2019
In this M&A case, an integrated design and manufacturing company, focused on heavy equipment for offshore energy, faced a costly legal battle. Here’s a simplified and concise summary.
Background:
An established company in Houston specializing in offshore equipment.
A European potential buyer wanted to expand its offshore services in the Americas.
In December 2010, they signed a nonbinding letter of intent for a potential acquisition, priced between $18-25 million.
Confidentiality Provision:
The letter of intent included a confidentiality clause, preventing the buyer from using the company’s confidential information for competitive advantages.
Due Diligence:
Due diligence started in February 2011 with the potential buyer’s team visiting the company.
The buyer gathered extensive information from the company, including business plans, financials, and customer lists.
Deal Falls Through:
The acquisition never happened due to a disagreement on the purchase price.
Competing Service Center:
The potential buyer launched a competing service center in Houston, staffed by members who had been part of the due diligence team.
This development raised concerns for the seller.
Legal Battle:
In December 2012, the seller sued the potential buyer, claiming a $12.7 million loss due to the misuse of confidential information.
A jury awarded $12.7 million in damages and $430,000 in attorney fees.
Appeal and Outcome:
The potential buyer appealed the verdict.
The appellate court reversed the jury’s decision, stating the seller couldn’t prove a loss.
Key Takeaway:
This case highlights the risk sellers face when dealing with buyers in the same industry.
Sharing confidential information is necessary for evaluation, but if the deal falls through, proving damages can be challenging.
Case Reference:
Cargotec Corporation v. Logan Industries, LLC, No. 14-17-00213-CV, Court of Appeals of Texas, Fourteenth District, Houston, (filed December 20, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
Email: jmccauley@mk-law.com
Profile: http://www.martindale.com/John-B-McCauley/176725-lawyer.htm
Telephone: 714 273-6291
Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles
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