One prevailing theme in merger and/or acquisition (M&A) transactions is risk allocation. How much risk is either the buyer or seller willing to assume? And, separately, what level of risk must either party assume in order to get the deal done? Assuming neither party has all the negotiating leverage, both parties will need to take on some amount of risk.

There is a life adage that says “time heals all wounds.” In M&A transactions, however, the opposite is true; and, as the saying goes, “time kills deals.” The longer it takes the parties to negotiate the deal points and paper the transaction, the greater the chances are that one of the parties might change its mind and walk from the deal.

It is critically important for the buyer and seller to avoid getting bogged down in protracted and bitter negotiations over the deal points. To be clear, the buyer and seller should not throw caution to the wind. Each party needs to think carefully and strategically through its points of concern and issues.

At the same time, in order to maximize the likelihood of getting the deal done, when it comes to tricky/sticky deal points, both the buyer and seller need to adopt a creative mindset to come up with compromises that provide for sufficient protection while taking on some risk in the process.

Take third-party consents, for example. In purchasing a seller’s company, the buyer wants to be confident of as smooth of a transition as possible. More specifically, the buyer wants to be as confident as possible that a post-sale seller’s business will remain intact.

One way the buyer gains confidence is to ensure the seller’s company’s third-party relationships and contracts will not be terminated as a result of the purchase and change of ownership. So, the buyer will typically want to require that the seller deliver at closing all such third-party consents to contracts.

Conversely, the seller will not want the deal with closing to turn on the necessity of obtaining and delivering to the buyer third-party consents on contracts which represent an insignificant part of the company’s value.

Often, both the buyer and seller will agree to a more limited set of third-party consents (required consents) on those contracts which comprise the core value of the company (core contracts). This represents a bit of creativity, as well as good and fair compromise. It gets the parties over the hump on the deal point and allows for forward progress. But, what happens if the parties are nearing the desired deal closing time and one or more of the required third-party consents on core contracts is still hanging out there?

The company’s relationship with these third parties are likely strong, and the seller is likely confident about obtaining these required third-party consents. It’s just that the third parties are notoriously slow at processing these types of administrative requests.

What to do?  Well, the buyer could hold up the deal and insist on the seller to obtain and deliver the consents. But that could take some time, and both parties would rather not delay the closing. To close the deal, the seller might agree to indemnify the buyer, on a per core contract-specified dollar amount basis, for the post-sale loss of any such core contract(s).

In agreeing to this structure, the buyer would be protected against not getting the full benefit of the company being purchased, and the seller would avoid taking on a “blank check”-type liability if one or more such contracts falls away.

So, you can see that creativity and controlled risk (or lack thereof) often times drive the success, or failure, of an M&A transaction.