'Material Adverse Effect' provisions in a share purchase agreement

'Material Adverse Effect' provisions in a share purchase agreement

James Hayden, solicitor in the Lexis®PSL Corporate team, considers the factors that the court will look at in assessing whether revisions to financial forecasts fall within a definition of material adverse effect (MAE).

Original news

Ipsos S.A. v Dentsu Aegis Network Ltd (previously Aegis Group plc) [2015] EWHC 1726 (Comm), [2015] All ER (D) 234 (Jun)

The proceedings arose out of the acquisition by the claimant from the defendant of one of its business divisions. The claimant claimed damages for loss it said resulted from fraudulent misrepresentations made by the defendant in respect of the forecasts on which the claimant relied, and damages for breach of contract. The defendant applied to strike out the particulars of claim or, alternatively, for summary judgment. The Commercial Court held that, in the circumstances, the defendant was entitled to the relief sought in one regard.

What is the background to this case?

This case is the latest action arising from the acquisition by Ipsos S.A (the Buyer) of Synovate (the Target) from Dentsu Aegis Network Limited, formerly Aegis Group plc (the Seller), for a purchase price of £528.8m, pursuant to a share purchase agreement dated 26 July 2011 (the SPA). The transaction completed on 12 October 2011 (completion being conditional because of Seller shareholder approval requirements and certain anti-trust and competition clearances). The purchase price was based on the application of a multiplier of ten to the forecast underlying profit for the Target for 2011.In a recent action, a warranty claim by the Buyer was struck out because it had failed to comply with the claim notice provisions in the SPA (see Construing a notification of claim in share sale agreements (IPSOS v Dentsu Aegis)).The applications before the court turned on the construction of MAE provisions in the SPA (the occurrence of a MAE being a condition to completion in respect of the period between exchange and the expected completion date of 30 September 2011).The Buyer issued

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About the author:
Jenisa is Head of Market Tracker, a transaction analysis product that sits within Lexis®PSL Corporate. She has over 13 years of legal publishing experience, with a focus on researching and reporting on trends and developments in the corporate and commercial legal market. Previous roles include content developer for Lexis®PSL, Legal Podcaster at Informa, and Research Editor at Practical Law Company where she specialised in reporting on cross-border corporate and commercial developments from the firm’s New York office.