What are covenants in a merger and acquisition agreement?

Covenants in a merger and acquisition agreement serve as critical contractual provisions that outline specific actions that the parties involved are obligated to undertake before or after the transaction is completed. These actions can include commitments regarding operational practices, financial performance, or the handling of specific assets and liabilities.

In an M&A context, covenants help ensure that both parties adhere to agreed-upon terms that facilitate a smooth transaction process and outline expectations post-merger. They offer protection for both the buyer and the seller by detailing what is expected during the transition and can cover a broad range of topics, including but not limited to non-disclosure agreements, financial reporting requirements, and operational limitations.

Other options may refer to crucial components of agreements but do not accurately capture the multifaceted nature of covenants. Financial penalties for breaches address the consequences of violating terms rather than the affirmative actions required. Non-compete clauses are a specific kind of covenant focused solely on preventing competition but do not encompass the broader range of actions. Finally, goals for post-merger integration may be important for assessing the merger's success but do not define the specific legal obligations that covenants represent within the agreement.