M&A protection clauses: Strategic structure and lessons learned from practice

In mergers and acquisitions (M&A), especially high-value or strategic ones, ensuring the deal is not unexpectedly broken, not falling into an "auction trap" or not being unnecessarily prolonged, is a top priority for the buyer. In order to protect the interests invested throughout the negotiation process, the buyer usually requires the seller to agree to certain Deal Protection Provisions ("DPPs").

Deal protection clause

DPPs are clauses included in M&A contracts to protect the interests of the buyer, ensure that the deal is not broken or unnecessarily prolonged or not subject to unwanted competition from third parties. Common deal protection clauses include: (1) a no-shop clause; (2) Termination fee; (3) The right to adjust the proposal (matching right) and (4) The fiduciary out mechanism.

These terms not only protect the interests of the buyer but also ensure a balance with the interests of the seller's shareholders. This is a very common transaction mechanism of international M&A activities, especially in complex transactions.  long lasting and great value. The recent M&A between Sun Pharmaceutical Industries Ltd. and Checkpoint Therapeutics, Inc. – a typical transaction in the global pharmaceutical industry in the first quarter of 2025 has effectively used this mechanism to make the deal "land" a success[1].

DPPs were created to serve the objectives of ensuring the success of an M&A transaction. First, DPPs protect costs and resources. Buyers often invest significantly in the process of due diligence, negotiation, and preparation of transactions. These terms help minimize the risk of losing money as well as investing time if the deal breaks down. Second, prevent the behavior of "shopping the deal". DPPs prevent the seller from using the signed agreement between the parties as a tool for backnegotiating with third parties. The clause is also a way to ensure the seriousness of the seller's transaction during the transaction completion process. Third, DPPs create certainty for the deal. From the moment of publication to completion, these terms help maintain the stability of the transaction. Finally, DPPs help reduce legal risk and influence the credibility of the parties. If the deal fails at the last minute, both parties could face financial losses, reputation, and market position. Once DPPs are signed, the parties are protected against these risks if the deal fails at any stage.

No-shop clause

This clause requires the seller not to seek, solicit or negotiate with third parties about the acquisition of the company nor to provide confidential information related to the target company to potential competitors who are spying on the target company.

However, to ensure shareholder interests, the "no-shop clause" often comes with an exception that allows the seller to consider superior proposals if they offer a significantly higher value than the value of the buyer's offer that the parties are making.

Termination fee

This is the amount that the seller must pay if one of the cases occurs, such as unilaterally withdrawing from the signed transaction or accepting another offer after having signed an agreement with the original buyer.

Contract breaking fees typically range from 2% to 4% of the deal value[2], depending on the size and nature of the deal. This fee not only offsets the cost but is also a barrier preventing the seller from changing the decision, leading to the breakdown of the deal and causing damage to the buyer.

Matching right

This right gives the buyer the right to receive immediate notice if there is a new offer from a third party to the seller about the transfer of the target company. In this case, the buyer has the right to consider whether to adjust the proposal made to the seller within a reasonable period of time (usually from 3 to 5 days, from the date of notification) in order to continue the transaction without being affected by this third party's offer.

This clause helps the buyer maintain a competitive position without having to offer a high price in the first place.

Fiduciary out

This clause allows the Board of Directors (BOD) of the target company to withdraw from or change the decision on the current transaction if a better competitive offer appears, in order to fulfill the highest fiduciary obligation to shareholders. This is a mechanism that allows the Board of Directors to prioritize the interests of shareholders instead of rigid contractual commitments, even if the company has signed an agreement with a previous buyer. This clause ensures that the Board of Directors properly performs the fiduciary obligations from shareholders and puts the interests of shareholders first.

B. Riley analyst Justin Walsh began coverage of Checkpoint, a cancer biotech company, with a buy rating and an $18 price target. Source: TheStreet

Sun Pharma acquires checkpoint therapeutics

Sun Pharmaceutical Industries Ltd. (Sun Pharma), one of Asia's largest pharmaceutical conglomerates based in India, has announced the acquisition of Checkpoint Therapeutics, Inc., a Nasdaq-listed biotechnology company. Checkpoint owns Cosibelimab, a promising immunotherapy for cancer. The deal is worth about $355 million in cash ($4.10 per share). With the added benefit that Checkpoint shareholders may be entitled to an additional Contingent Value Right of up to $0.70 per share if Cosibelimab is approved in Europe. This could bring the total potential value of the deal to about $415–416 million[3].

In this transaction, the parties included DPPs in the signed agreements and used them as a special mechanism to bring the deal to success. The transaction's records show that Checkpoint is bound not to contact or negotiate with third parties about acquiring the company. However, this clause does note an exception that if Checkpoint receives a Superior Proposal, Checkpoint is allowed to discuss it but must immediately notify Sun Pharma and comply with a transparent process. The agreement ensures Checkpoint can still consider better opportunities without breaching its obligations to Sun Pharma. In addition, the agreement signed between the parties also states that if Checkpoint cancels the transaction or accepts another offer, the company must pay $12.5 million in contract breaking fees. This fee accounts for about 3.5% of the value of the deal, which is within international practice and serves as a deterrent, ensuring that Checkpoint seriously implements the agreement signed with Sun Pharma.

In the transaction filings that Checkpoint filed with the U.S. Securities and Exchange Commission, it is shown that the parties also have a mechanism in place that Sun Pharma is entitled to receive immediate notice if there is a new offer from a third party and has 4 business days to adjust its proposal. Or stipulate that Checkpoint's Board of Directors has the right to change recommendations or withdraw from transactions in case of a new proposal that brings higher financial value and less risk.

The Sun Pharma – Checkpoint deal is a good example of how to design deal protection terms in a professional and balanced way in protecting the interests of Checkpoint shareholders, or creating a transparent and fair mechanism, while maintaining the stability and certainty of the transaction.

The deal also demonstrates professionalism in the application of international M&A practices, with the key mechanism design of the lawyers involved in the case.

DPPs in Vietnam's M&A market

In Vietnam, DPPs are still a relatively strange trading mechanism and have not been widely applied. There are many different reasons for this. First, there is a lack of clear legal regulations. The Enterprise Law, the Competition Law and the Securities Law have not specifically mentioned provisions such as no-shop clauses or termination fees. Therefore, these terms usually only appear in deals involving international lawyers or reputable companies with large transaction values. Second, the apprehension of the parties in the transaction. Sellers in Vietnam are often concerned that deal protection clauses may limit the freedom of negotiation or reduce the attractiveness of the target company. Compensation for large costs when terminating the transaction is something that the Vietnamese seller is often not easy to accept or comfortable when entering into the transaction agreement. Thirdly, Vietnam's M&A market is a newly developed market with a small scale, deals are usually not too large, so parties want to "buy fast, sell fast" without wanting to be bound by troublesome mechanisms and getting out of these mechanisms is a big problem.

The lack of DPPs leads to many risks for the parties involved in the transaction: From (i) Financial losses when the buyer can lose hundreds of millions of VND in due diligence, legal and financial costs if the deal is canceled at the last minute. (ii) Risk of disclosure of confidential information If the seller simultaneously negotiates with multiple parties, the company's sensitive information may be leaked to competitors. (iii) Influence on the reputation of the parties when announcing a deal and then letting it fall apart.

In the context of Vietnam's increasingly vibrant M&A market, especially in sectors such as pharmaceuticals and biotechnology, deal protection clauses such as no-shop clauses, termination fees, matching rights and fiduciary outs play an important role in ensuring stability.  fairness and optimization of transaction costs. To keep up with international M&A practices, Vietnam needs to develop a clear legal framework and encourage the application of DPPs. This will not only help protect the interests of participants but also enhance the competitiveness and attractiveness of Vietnam's M&A market in the international arena.

Lawyer Nguyen Van Phuc

HM&P Law Firm