The Weekly Brief: Commercial Awareness Updates

[Amma Usman]

Equity Financing

Equity financing is when a company raises capital by selling shares of its stock to investors. Unlike debt financing, the company does not need to repay the funds or pay interest. In exchange, investors receive ownership stakes and may influence corporate decisions. This method dilutes existing ownership but strengthens the balance sheet. It's commonly used by startups and growth companies that lack steady cash flows for loans.

 

[Amma Usman]

Shareholders’ Agreement

A shareholders’ agreement is a contract between a company’s shareholders that governs their rights, obligations, and how the company should be run. It typically covers issues like share transfers, voting rights, dividend policy, and dispute resolution.

 

[Amma Usman]

Material Adverse Change (MAC) Clause

A MAC clause allows a party, usually a buyer in an M&A deal, to walk away if a significant negative event affects the target company. This could involve financial downturns, loss of key clients, regulatory sanctions, or other events that fundamentally reduce the company’s value. The definition of “material” is often debated and negotiated. MAC clauses were heavily scrutinized during the COVID-19 pandemic. They serve as a risk allocation tool during deal negotiations.