week, a jury in Boston rejected a claim against Goldman Sachs in its role as
investment banker to the sale of Dragon Systems Inc. The deal involved a sale
of Dragon to Belgian company, Lernout & Hauspie, in consideration for which
Lernout & Hauspie issued its own stock to Dragon’s shareholders in an
all-stock deal. The trouble was that the acquirer, Lernout & Hauspie, soon
became mired in a fraud and then filed for bankruptcy leaving the selling
shareholders with nothing of value from the deal.
others, Dragon’s founders sued Goldman Sachs, the investment banker on the sell
side for breach of duties. However, the jury was not persuaded about the claim
because the Dragon itself appeared to be keen to close the deal in a speedy
manner and ignored some red flags.
details and analysis of this verdict are available at:
Law Prof Blog; and
This episode provides
numerous lessons on M&A deal-making, including the process for appointment of
investment bankers, negotiating the terms of the engagement and also running a
tight ship while negotiating an M&A deal so that red flags are not missed
that return to haunt a failed deal later.