Key Takeaways
- • Attorney-client privilege ownership in M&A transactions remains undefined in many deals, creating material risk that confidential pre-closing communications between sellers and their legal counsel may be accessible to buyers post-transaction if not explicitly addressed in definitive agreements.
- • Courts have issued repeated cautions over several years that privilege protections may be limited or forfeited entirely in mergers and acquisitions if parties fail to establish clear contractual provisions governing privilege ownership and post-closing access to legal communications.
- • The "who and whose" framework requires deal parties to clarify the identity of the client (typically the target company in sell-side scenarios) and determine which party retains privilege rights to pre-closing attorney communications following the change of control event.
- • Vorys, a 375-attorney firm ranked among the 200 largest U.S. law firms, has authored a white paper addressing these attorney-client privilege issues through its M&A and Private Equity Groups, signaling elevated institutional attention to this previously overlooked transactional risk.
Summary
Mergers and acquisitions practitioners have historically given minimal attention to a critical but often overlooked issue: the preservation and ownership of attorney-client privilege covering pre-closing communications between target company counsel and legal advisors. However, court decisions over recent years have signaled that parties who fail to explicitly address privilege ownership in transaction documentation face material risk of losing confidentiality protections entirely or having privileged communications become available to acquirers post-closing.
The central tension arises from ambiguity surrounding the client relationship itself in change-of-control transactions. In typical M&A structures, the selling party's legal counsel has represented the target company as the client entity. Upon closing, ownership and control of that entity transfer to the buyer, raising the unresolved legal question of whether privilege rights follow the change in ownership or remain with the pre-transaction beneficial owner. Without contractual clarity, courts have increasingly ruled that the acquiring entity, as the new owner of the target, may claim privilege holder status over all pre-closing communications—effectively stripping selling parties and their advisors of confidentiality protection.
This exposure extends beyond academic risk. Parties in active litigation or regulatory investigations, as well as those conducting operations subject to heightened scrutiny, face particularly acute consequences if privileged strategy communications, legal opinions, risk assessments, and negotiation materials become discoverable by acquirers or exposed in subsequent disputes. The issue has attracted attention from major transactional practices, including Vorys, Sater, Seymour and Pease LLP—a 375-attorney firm with offices across the Midwest and national reach—which has prepared comprehensive guidance on structuring privilege protections into transaction agreements.
To retain privilege protections for pre-closing communications, deal parties must affirmatively establish contractual provisions that define privilege ownership, specify which communications remain protected, designate escrow or separate counsel arrangements for disputed materials, and establish processes for handling inadvertent disclosures. The absence of such provisions leaves parties dependent on uncertain case law and court discretion, undermining the fundamental confidentiality necessary for candid legal advice during the sensitive pre-closing period.
The central tension arises from ambiguity surrounding the client relationship itself in change-of-control transactions. In typical M&A structures, the selling party's legal counsel has represented the target company as the client entity. Upon closing, ownership and control of that entity transfer to the buyer, raising the unresolved legal question of whether privilege rights follow the change in ownership or remain with the pre-transaction beneficial owner. Without contractual clarity, courts have increasingly ruled that the acquiring entity, as the new owner of the target, may claim privilege holder status over all pre-closing communications—effectively stripping selling parties and their advisors of confidentiality protection.
This exposure extends beyond academic risk. Parties in active litigation or regulatory investigations, as well as those conducting operations subject to heightened scrutiny, face particularly acute consequences if privileged strategy communications, legal opinions, risk assessments, and negotiation materials become discoverable by acquirers or exposed in subsequent disputes. The issue has attracted attention from major transactional practices, including Vorys, Sater, Seymour and Pease LLP—a 375-attorney firm with offices across the Midwest and national reach—which has prepared comprehensive guidance on structuring privilege protections into transaction agreements.
To retain privilege protections for pre-closing communications, deal parties must affirmatively establish contractual provisions that define privilege ownership, specify which communications remain protected, designate escrow or separate counsel arrangements for disputed materials, and establish processes for handling inadvertent disclosures. The absence of such provisions leaves parties dependent on uncertain case law and court discretion, undermining the fundamental confidentiality necessary for candid legal advice during the sensitive pre-closing period.
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