On December 12, Senior Associate Valerian Mamageishvili spoke at the 8th Annual Private Equity and M&A Conference.
At the session “Key tools for structuring cash-in and cash-out transactions: legal issues that businesses need to be aware of” Valerian said that there is a significant gap in valuations and planning horizons between sellers and buyers in the transaction market, which strengthens the position of the latter due to expensive financing and low demand. To mitigate the imbalance, parties are actively using cash-in transactions with mechanisms for subsequent purchase of stakes, various options (fixed-valuation, minimum-return, penalty), and the prevalence of earn-out mechanics is growing. All these instruments require careful legal elaboration and may give rise to certain risks.
He also addressed the following issues:
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Cash-in transactions: peculiarities and risks.
Unlike cash-out constructions, cash-in transactions give the buyer a limited toolkit of protection. The key issues are the procedure for recovery and limits of damages set out in the contract, enforceability of provisions aimed at protecting the buyer's interests.
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Options: practical structuring issues.
Risks arise when essential terms (subject matter, exercise period, etc.) are not agreed upon, which creates a risk of the contract being recognized as non-concluded. Legal elaboration determines the enforceability of business agreements.
In addition, the following issues were discussed: (i) mechanisms of automatic exercise of share and stock options, (ii) risks associated with recharacterization of penalty options, (iii) peculiarities of options concluded with individuals.
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Due diligence and assurances.
So far, jurisprudence with a broad interpretation of the standard of care has dominated - as a result, courts often take a pro-seller stance. Only in-depth due diligence can reliably protect the buyer's interests.
In 2025, there is a smooth turnaround in court practice - courts are more likely to take into account the buyer's position and recognize the buyer's right to compensation. Relevant cases were analyzed.
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Compensation for property losses.
It is sometimes overlooked that the instrument has a purely compensatory nature, so it is important to prove the fact or inevitability of property losses and their causal connection with the basis of compensation. Correct wording of the contractual provisions is of key importance - an inaccurate description of the basis of compensation and the way of confirming losses leads to contradictory court decisions.
