What is the anti-embarrassment clause?
Imagine selling part of your business, only to see the buyer resell it for double shortly after. Frustrating. The anti-embarrassment clause prevents that.
It is a legal mechanism that protects the seller in transactions involving the sale of shares, stock, or assets. If the buyer resells at a much higher price within an agreed-upon period, the seller receives compensation.
How does it work?
It usually sets a 12-24 month period. If the buyer resells at a higher price, the seller receives:
- A percentage (often 10% to 50%) of the profit.
- A minimum threshold for activation.
- Tiered systems increasing with the gain.
Real example: Telefónica and American Tower
In 2021, Telefónica negotiated this clause when selling assets to American Tower. If resold within two years at a higher price, Telefónica would be compensated.
This example shows how the anti-embarrassment clause is particularly useful in transactions where the value of the assets can increase rapidly.
When is it useful?
It is recommended in sale and purchase transactions of:
- Startups with high growth potential.
- Assets likely to appreciate quickly.
- Fast-moving industries like tech and telecoms.
Why it matters
If you are considering selling shares in your company or strategic assets, including an anti-embarrassment clause can be key to not missing out on unexpected gains.
At Lextelier, we have a team specialized in corporate and commercial law that can advise you in negotiating and drafting these clauses to your advantage.