Stalking Horse Purchase Agreement

A stalking horse purchase agreement is a type of contract used in M&A (mergers and acquisitions) deals. It is a term derived from the practice of using a stalking horse in hunting. In this context, the term refers to a company that is used to test the market`s interest in a potential acquisition.

In a stalking horse purchase agreement, a buyer enters into an agreement with a seller to make an initial bid for the seller`s assets or business. The purpose of this bid is to set a minimum price for the sale, which other potential buyers must match or exceed. This allows the seller to gauge the level of interest in their assets and ensures that they get the best price possible.

The stalking horse bidder is typically chosen because they have a strategic interest in the transaction or are willing to pay a premium price. In exchange for their initial bid, the stalking horse bidder is given certain protections, such as a break-up fee if the sale falls through or the right to match any higher offers that are made.

The use of a stalking horse purchase agreement can benefit both the buyer and the seller. For the seller, it provides a way to test the market and ensure that they receive the best possible price for their assets. For the buyer, it allows them to gain an advantage over other potential bidders and potentially acquire the assets at a lower price.

However, there are also some risks associated with using a stalking horse purchase agreement. If other bidders are not aware of the initial bid, they may not be willing to participate in the auction process, which could result in a lower final sale price. Additionally, the use of a stalking horse bidder could be seen as unfair or unethical if other potential bidders are not given the same opportunity.

In conclusion, a stalking horse purchase agreement is a valuable tool in the M&A process, but it must be used carefully and ethically. Both the buyer and the seller must be aware of the risks and rewards associated with this type of contract and be prepared to negotiate accordingly. As a professional, it is important to understand the terminology and nuances of this type of agreement in order to produce high-quality content that is informative and accurate.