Restrictive Covenants In Private Equity Transactions

Restrictive covenants are unquestionably a significant deal consideration in M&A transactions. In the private equity context, a buyer is focused on restrictive covenants to protect its investment by binding the sellers and other recipients of material deal proceeds to obligations and restrictions for a certain period of time following the transaction. Restrictive covenants serve several purposes and are highly beneficial for a buyer; accordingly, absent any legal limitations and assuming sufficient consideration, a buyer is incentivized to impose restrictive covenants on as many selling parties as possible. However, and not surprisingly, sellers heavily negotiate their post-transaction restrictive covenant obligations to keep their business options as open as possible on a go-forward basis. The conflicting interests of buyers and sellers when it comes to restrictive covenants result in carefully negotiated covenants spread out over multiple transaction documents and