Deal contingent hedging contracts

Financial instruments that can be used to hedge purchase risk involved in purchase deals. Acquisitions may for example not be carried out for regulatory reasons or because the transaction is dependent upon a shareholder vote. When hedges are put in place with respect to a private equity acquisition transaction there are upfront costs incurred in case the acquisition does not take place and flexibility is needed as to the multiple settlement / exercise or extension of the hedging contracts. Deal contingent options and deal contingent forwards are contracts pursuant to which payments by both parties are contingent on an event that is linked to the acquisition transaction.