In recent years, the inclusion of a so-called anti-shame or anti-embarrassment clause has become more and more common in company purchase and sale transactions. This allows the selling party to secure financial compensation in the event that the buyer resells the assets at a significantly higher price within a relatively short period of time.
The anti-embarrassment clause is often found in divestment contracts of private equity companies. The aim is literally to prevent the seller from being embarrassed by the agreed price. Because calculating the price in M&A can be very complicated and thus minimises the risks of both financial and reputational damage.
When Telefónica sold its mobile tower division in Europe and Latin America to American Tower for €7.7 billion it included an anti-shaming clause in the contract. This ensured that it would receive financial compensation in the event that American Tower sold all or part of the assets, merged with another company, agreed to share the infrastructure with a third party…
Why include an anti-embarrassment clause in the sales contract?
Also known as a best-fortune clause, this is a mechanism that gives the seller peace of mind that the agreed price is not far below the market. Because sometimes it is natural to have doubts about this and even suspect that the buyer has already agreed to a subsequent resale at a much higher price.
The anti-embarrassment clause is in fact an agreement in the contract according to which the sale price will be adjusted upwards if the buyer resells the shares at a higher price. In addition to sparing the seller the embarrassment of having sold below the market price, this clause serves to make the seller a participant in the capital gain made by the buyer.
There are four key issues to specify in any anti-shaming or anti-embarrassment clause:
If your company is going to negotiate the M&A transaction, Confianz can help you negotiate an anti-shaming clause to ensure you get the best price for the sale.