How to prevail when technology fails - Flipbook - Page 29
Technology M&A, joint ventures and outsourcing: An opportunity to be considered carefully | 29
Seven ways to mitigate
deal risk
You should involve internal and external legal
counsel in the deal at the earliest opportunity. And
legal teams should remain involved once the deal is
in operation to help identify and manage any risks
that materialize.
Beyond that fundamental step, our work with clients
has revealed seven more ways to minimize the risks
of these kinds of deals.
1
Plan ahead
for divorce
It is important to agree a process for winding down
a technology JV if necessary, and establish how the
assets and liabilities will be divided. Defining this
clearly at the outset will increase the likelihood
of salvaging key technology and staving off the
threat of litigation. The documentation must clearly
define the circumstances in which each party can
terminate the JV, how they must inform the other
side, the rights of each party to background and
foreground intellectual property (IP) and licenses
and how the financial accounts will be dealt with.
IP specialists should be consulted to review deal
document at the outset to ensure that it can be
protected in a dispute. It is also absolutely crucial
to detail the dispute resolution mechanisms in the
event that the parties cannot agree on how the JV
will be dissolved.
2
Think carefully about
director duties and
shareholder rights
It is imperative to consider carefully who the
directors of a new JV will be and what their
respective duties are to the JV company. Typically,
the JV directors will also be directors of the two
separate business entities who formed the JV,
so conflicts of interest may emerge. You should
therefore discuss and then articulate in deal
documentation the rights and responsibilities of
each director and what happens to each director
should the JV be terminated. It may also make
sense to appoint a completely independent director
to manage the JV.
3
Clearly define
key milestones
The value of technology startups is difficult to
assess, so acquirers often make payments against
particular milestones such as achieving sales targets
or hitting profitability. Litigation can follow if the
acquirer believes that the target has not made
reasonable efforts to achieve a particular milestone,
or if the target believes the acquirer has hampered
its efforts to do so. You can prepare for this in
advance by discussing at the negotiation stage what
constitutes reasonable efforts and then clearly
defining this in the deal documentation. Legal
teams should also work with the business to actively
ensure that these contracts are well managed so that
risks are identified early and rights are protected.
Doing this protects the business and helps to avoid
costly litigation.
“Many businesses don’t detail how a JV can be wound down. But not
doing so creates multiple complex issues if the partnership fails.”
Nathan Searle | Partner, Hogan Lovells