Explore a 2015 M&A case where the disclosure of customer contract nonrenewals becomes a pivotal issue. Gain insights into the importance of clear language in M&A agreements.
M&A Stories
December 5, 2018
In a 2015 M&A case, a buyer based in Boulder, Colorado acquired a company offering IT infrastructure services. The seller, a Denver holding company, had several subsidiaries involved in data center services. This acquisition became problematic for the buyer after the deal closed because some major customers had indicated they wouldn’t renew their contracts or would do so on less favorable terms. Surprisingly, the seller hadn’t disclosed this information before the deal.
The buyer believed that the seller was obligated to disclose this under the stock purchase agreement, which required disclosing customers terminating, canceling, or materially modifying material contracts. The court, however, found this language ambiguous. It could be interpreted to cover contract nonrenewals, or it might apply only when a customer ends a contract before its expiration. The court looked at the parties’ prior behavior and found that the buyer had attempted to add language requiring disclosure of customer nonrenewals, but the seller rejected it. As a result, the court ruled that the buyer couldn’t sue the seller for non-disclosure of nonrenewals.
This case underscores the importance of clear and explicit language in M&A agreements. If the buyer had inquired about the seller’s refusal to disclose nonrenewals during negotiations, it might have avoided the post-closing issues.
Case Reference:
Zayo Group, LLC v. Latisys Holdings, LLC, C.A. No. 12874-VCS, Court of Chancery of Delaware, (Decided: November 26, 2018).
By John McCauley: I help people start, grow, buy and sell their businesses.
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