No contemplation of a business combination: Overview, definition, and example
What is "no contemplation of a business combination"?
The phrase "no contemplation of a business combination" refers to a statement or clause in a contract or agreement that asserts that, at the time of the agreement, the parties are not considering or planning any mergers, acquisitions, or other forms of business combinations. This means that the parties involved have no current intention or active discussions about combining their businesses, whether through a merger, acquisition, or other consolidation.
This clause is commonly used in the context of financial transactions, such as financing agreements or merger and acquisition (M&A) discussions, where one party may want to ensure that there are no pre-existing plans for combining the businesses involved in the deal. It serves as a declaration that no negotiations or plans for such a combination are taking place at the moment the agreement is signed.
Why is "no contemplation of a business combination" important?
This clause is important because it helps provide clarity and certainty for all parties involved in a transaction or agreement. By stating that there is no contemplation of a business combination, the parties make clear that they are not secretly preparing for an M&A event that could impact the transaction or alter the future direction of the business.
For investors, this clause can protect them from the potential risks associated with a company unexpectedly entering into a business combination, which could affect the value of their investment or their control over the company. For companies, it helps set expectations and avoids potential conflicts regarding future plans or strategic shifts.
Understanding "no contemplation of a business combination" through an example
A technology company is negotiating a financing agreement with a private equity firm. As part of the agreement, the company includes a clause stating that there is no contemplation of a business combination. This assures the private equity firm that, at the time of the investment, the company is not planning or discussing any potential mergers or acquisitions, which could affect the terms of the financing or the firm’s investment strategy.
In another scenario, a supplier and a manufacturer sign a long-term supply agreement. The supplier might include a clause stating "no contemplation of a business combination", assuring the manufacturer that, at the time of the agreement, the supplier has no intention to merge with or be acquired by a competitor, which could disrupt the supply relationship or introduce conflicts of interest.
An example of "no contemplation of a business combination" clause
Here’s how this type of clause might appear in a financing or partnership agreement:
"The Parties acknowledge and agree that, as of the date of this Agreement, there is no contemplation or intention by either Party to enter into any business combination, including any merger, acquisition, or consolidation, with any other entity. Each Party affirms that it is not engaged in any active discussions or negotiations regarding such a transaction."
Conclusion
The phrase "no contemplation of a business combination" is a declarative statement in a contract or agreement that indicates that, at the time of signing, the parties are not planning or negotiating any mergers, acquisitions, or other forms of business combinations. It is an important clause for providing transparency and managing expectations between the parties involved, particularly in financial, partnership, and investment agreements. By addressing this matter upfront, companies and investors can reduce uncertainty and ensure that future business decisions are clearly communicated.
This article contains general legal information and does not contain legal advice. Cobrief is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice, please ask a lawyer.