Explore a real-life M&A case highlighting the importance of clear agreements. Learn how a buyer’s rights were protected through written agreements. Dive into the world of mergers and acquisitions with this legal blog.
M&A Stories
April 15, 2019
In the world of M&A, transactions can take different paths. Some deals happen in one swift move, while others are more drawn out. Let’s dive into a case involving a deferred closing deal that sheds light on the importance of clear agreements.
The Deal:
This specific transaction involved the sale of multiple nursing homes spread across southern states. The buyer and seller signed an asset purchase agreement in February 2014. However, the actual closing would occur later, contingent on certain conditions being met.
Seller’s Assurances and Breaches:
In the asset purchase agreement, the seller made several assurances to the buyer:
1. The seller had the authority to sell all nursing homes.
2. No new leases for nursing homes would be entered into after signing the agreement.
3. All pending or threatened litigations affecting the nursing homes were accurately disclosed.
4. Audited financial statements for the years 2010 through 2013 would be provided.
Unfortunately, the seller failed on several fronts:
1. One nursing home was under receivership, meaning the seller didn’t have control over it.
2. The seller went against the agreement by entering into new nursing home leases.
3. Whistleblower actions against one nursing home, involving false claims for federal health care reimbursements, were not disclosed.
4. The promised audited financial statements were never delivered.
The Lawsuit:
Fast forward two years and 152 amendments to the asset purchase agreement, the buyer decided to terminate the deal due to these breaches. They sought the return of the $400K deposit, damages, legal fees, and costs, leading to a lawsuit in a New York federal district court.
The Seller’s Argument:
The seller acknowledged their breaches but argued that the buyer had effectively waived their right to sue by signing amendments despite knowing about the breaches.
The Court’s Verdict:
The court rejected the seller’s argument, pointing out that the asset purchase agreement explicitly stated that any waiver by the buyer had to be in writing. Since no such written waiver existed, the buyer’s rights remained intact.
Conclusion:
This case highlights the significance of clear written agreements in M&A deals. In this instance, the buyer’s rights were safeguarded by the requirement for written waivers. It’s a testament to the importance of meticulous documentation in the complex world of mergers and acquisitions.
Case Reference:
Trodale Holdings LLC v. Bristol Healthcare Investors, No. 16 Civ. 4254 (KPF), United States District Court, S.D. New York, (March 21, 2019)
By John McCauley: I help businesses minimize risk when buying or selling a company.
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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