The following is not meant to be legal advice.
In re Netsmart Technologies, Inc. provides guidance on how boards should conduct a market review, and negotiate deal protections when engaging in mergers and acquisitions.
When a company does not do a pre-signing market review by exploring the interests of potential buyers, it may be a breach of board duties. The Netsmart case involved private equity buyers. It is an example of a company that did not do a diligent pre-signing market review. Netsmart was a micro cap company so it did not have much in terms of analyst coverage or valuation data. In dealing with competing bids, a board should study the maximize price. The board should review why a higher bid is not viewed as a better offer.
In Netsmart, the court instructs that a pre-signing market review consists of soliciting actively potential bidders, maximizing value versus sporadic, cold contacts with strategic buyers over several years.
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