COVENANTS IN M&A TRANSACTIONS

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Covenants are undertakings by a party to take or refrain from taking certain actions. The undertakings may relate to the time period between signing and closing (provided that they are separate from each other) or to the time period after closing has occurred. Typical examples of covenants are non-compete and non-solicitation undertakings. A non-compete undertaking is made by the seller and relate to the fact that the buyer has a valid interest that the seller post-closing is not setting up or financing a business that competes with the business divested to the buyer. To the extent that the seller/ultimate seller is an individual, the non-compete undertaking normally also includes a restriction for the seller to take employment or provide consultancy services to a competing business.

Non-solicitation and non-compete covenants are often found in other situations as well, such as when the founders of a company enter into such covenants in connection with a financing round.

For further information, please contact Oskar Belani.

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