The #MeToo movement has permanently altered the world of mergers and acquisitions. Since the reports of Harvey Weinstein’s misconduct broke in October 2017, it is estimated that over 800 business leaders have been accused of sexual misconduct – rocking, and often sinking, the companies they help lead. Accordingly, M&A agreements have adapted to guard against the risks presented by sexual harassment allegations within the C-suite.
For the first time this year, a majority of deals announced (51% of transactions thus far in 2021) include a “Weinstein Clause,” and they are rapidly becoming the norm. Matterhorn’s M&A database tracks publicly-announced deals over $25 million in value, harnessing both AI and attorneys to digest the granular deal points of each transaction to allow for comparisons across industries, specific deal terms, and both legal and financial advisors.
While the language varies, the industry standard is coalescing around,
“The Company has not received any written or, to the Knowledge of the Company, oral allegations of sexual harassment (with respect to any director or officer of the Company or any of its Subsidiaries, whether or not such allegation relates to such directors service or such officers employment with the Company). Neither the Company nor any of its Subsidiaries has entered into any settlement agreements related to allegations of sexual harassment or sexual misconduct by a director, officer or employee of the Company or any of its Subsidiaries in the past six (6) years..”
This example is pulled from Merck’s $11.5 billion acquisition of Acceleron in October.
Including clauses related to sexual harassment are not new. However, what has changed drastically is the frequency and nature of the language. Over the decade prior to the Weinstein reports, sexual harassment was occasionally (just 3.2% of deals) included in a list of discriminatory practices to assure compliance with relevant laws, using broad language such as that used in Lockheed Martin’s $9 billion acquisition of Sikorsky Aircraft back in 2015:
“Each Transferred Entity is, and has been during the three (3) years preceding the date of this Agreement, in compliance in all material respects with all applicable Laws (other than Tax Laws, which are covered in Section 3.13) relating to labor and employment, including those relating to labor management relations, wages, hours, overtime, employee classification, discrimination, sexual harassment, civil rights, affirmative action, work authorization, immigration, safety and health, information privacy and security, workers compensation, continuation coverage under group health plans and wage payment.”
However, since October 2017, 22% of deals have included pointed reps and warranties against sexual harassment, representing a 579% surge over the prior decade. And the trend is becoming more frequent each year, with just over half of deals this year, up from 39% of deals in 2020 and 20% of deals in 2019.
Notably, almost half of all deals announced still lack language focused on sexual harassment or misconduct.