Yes, assuming that the objective has no right to sell in the contract, a buyer is not obligated to make use of the option and may therefore request changes to the merger agreement before committing to exercise the option. However, an objective is not obliged to accept such a change to the acquisition contract executed. Changes that have a negative effect on shareholders who have previously approved the agreement may also be necessary under current state law. For example, if the agreement is structured as a merger in Delaware, any change that could affect the purchase price or make other changes under the terms of the agreement detrimental to shareholders would require the agreement of the board of directors and shareholders of the objective. Therefore, a buyer`s leverage to seek to amend the merger agreement during the option period may be limited and depends, among other things, on market conditions and the specific circumstances of a target, including the willingness of the funders to allow the purchaser to withdraw from the agreement without making use of the possibility of acquiring the destination or asset. In general, these structures are used when a target has a business or product that needs to be developed to arrive at a “proof of concept” or another point where the buyer is willing to buy the destination or asset directly. As a general rule, the objective requires additional financing to finance development activities, but the buyer is not willing to provide the often significant financing of the development without obtaining some certainty that he has the exclusive option to acquire the objective in the future. The transaction acquisition option can also be structured as a purchase of assets that may or may not require shareholder approval, or as a merger or purchase of assets when choosing the buyer. (As a general rule, the acquisition of assets would have a higher purchase price than the merger structure in order to compensate shareholders for the tax and other disadvantages of structuring the agreement as an asset sale. If the purchase price is structured as a choice, it may also reflect the additional costs incurred if both structures must be fully negotiated in order to execute the transaction itself). On the other hand, as noted above, the ability of an objective to renegotiate the terms of the acquisition is very limited. Assuming that the option is properly structured and that shareholder agreement was effectively obtained in the absence of fraud or other breaches of the agreement, an objective (and its shareholders) should not, as a general rule, have the leverage to increase the purchase price or improve the terms of the merger agreement in terms of trust, compensation or other conditions for the duration of the option. Why do parties structure transactions as an option to acquire transactions? The transaction purchase option can occur at any stage of a target`s lifecycle.
In the context of startups, these transactions are commonly referred to as “Build to Buy” transactions because the buyer provides the potential target, in a sense, with the financial resources necessary to transform the target`s product or activity into a business that the buyer would be willing to buy. More mature companies may also acquire the opportunity to acquire activities in order to develop an existing industry or to seek support for a change in the company`s strategic direction for a specific product or activity. Purchase options are quite common in medical devices and the life sciences industry and have been used by a major pharmaceutical company to identify new drug candidates. However, a transaction option also offers attractive opportunities for funds and companies in other sectors to look at new technologies. What is the impact of option operations on staff and on the day-to-day operation of the target? The objective should be to clarify the closing date of the option period. In general, it is best to have an objective milestone that marks the end of the option period.