Dive into the intricacies of M&A legalities with our latest blog post. Learn valuable lessons from a recent legal case regarding buyer’s post-closing actions and the implications for seller’s supply contracts. Gain insights into navigating relationships with a seller’s vendors, suppliers, and customers, and understand the importance of contract assumption. Stay informed and proactive in your M&A endeavors to mitigate risks and ensure smooth transitions.
M&A Stories
June 1, 2018
In the realm of mergers and acquisitions, a recent legal case underscores a crucial lesson for asset buyers: tread carefully when navigating relationships with a seller’s vendors, suppliers, or customers post-closing, particularly concerning contracts not explicitly assumed.
The case in question revolves around an Asset Purchase Agreement executed on November 19, 2010, where the buyer, though not assuming a pre-existing product supply agreement (the “Argon Agreement”), engaged in argon purchases from the seller’s supplier shortly after the acquisition.
Despite the buyer’s initial stance of non-assumption, subsequent actions spoke volumes. As documented by the court, following the acquisition, the buyer actively engaged with the supplier regarding the Argon Agreement. Notably, on October 20, 2014, the buyer met with the supplier, discussed the agreement’s terms, and continued purchasing argon for nearly three years in accordance with its provisions, including pricing.
However, a turning point arose on October 16, 2017, when the buyer, alleging overcharges, ceased argon purchases, prompting the supplier to initiate legal action for breach of contract.
Central to the legal dispute was whether the buyer, despite its initial disavowal, effectively bound itself to the Argon Agreement through its post-closing conduct. The court’s ruling hinged on the buyer’s possession of the agreement, its awareness of its terms, and the sustained performance under it. Consequently, the court determined that the buyer ratified the Argon Agreement, thereby obligating itself to its terms.
The crux of this case illuminates a critical takeaway for asset buyers: vigilance in dealings with a seller’s counterparties post-acquisition. It underscores the necessity for meticulous review of existing contracts and the potential need for renegotiation or the establishment of new agreements tailored to the buyer’s preferences.
In conclusion, the case of Matheson Tri-Gas, Inc. v. FlexTM, Inc. serves as a cautionary tale, urging prudence and proactive engagement in post-closing interactions to safeguard against unintended contractual obligations.
Case Reference:
Matheson Tri-Gas, Inc. v. FlexTM, Inc., Civil Action No. 4:18-CV-0248, United States District Court, S.D. Texas, Houston Division (May 24, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
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