A stalk agreement, also known as a stalking horse agreement, is a term used in business that refers to an arrangement between two parties during a merger or acquisition. The agreement is set up between the target company and a third party, also known as the stalking horse bidder.
The stalking horse bidder is essentially a company or individual who acts as a proxy for the target company during the auction or bidding process. They agree to place a starting bid on the target company, which then acts as a benchmark for other potential bidders to follow.
The purpose of a stalk agreement is to provide the target company with some measure of control over the sale process. By having a stalking horse bidder in place, the target company can minimize the risk of having to accept a lowball offer from an unqualified buyer. The stalking horse bidder also provides an incentive for other potential bidders to participate in the auction, thereby increasing the chances of a successful sale.
In some cases, the stalking horse bidder may also be offered certain incentives or protections in exchange for their participation. For example, they may be given a “break-up fee” if they are ultimately outbid by another party.
Stalk agreements are particularly common in bankruptcy sales, where the target company is in financial distress and needs to sell its assets to repay creditors. In these cases, the stalking horse bidder may be a strategic investor who is interested in acquiring specific assets or business lines, rather than the entire company.
Overall, a stalk agreement is a valuable tool for companies looking to maximize their sale price and minimize risk during the acquisition process. It allows the target company to maintain some degree of control over the sale process, while also providing an incentive for qualified bidders to participate in the auction.