Looming “Fiscal Cliff” Speeds Mergers

Small business of-interest and need-to-know.

Excerpt:  With capital gains and dividend tax rates set to rise in 2013 barring congressional action, dealmakers are rushing to close merger and acquisition transactions by year-end. Acquirers, especially those in industries that are rapidly consolidating, say the impending changes to the tax code — the end of some business tax breaks and higher rates on capital gains and dividends — have lit a fire under business owners.

Owners of closely held businesses who would record a large individual gain from a sale, in particular, are eager to sell. And the threat to the U.S. economic outlook from the “fiscal cliff” is adding to the pressure.

Read full article fiscal cliff capital gains rate sellers Buffalo Wild Wings Airgas Waste Connections.  From CFO.com

Financial vs Strategic Buyers — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know and news-to-watch M&A.  The study provides insights into the patterns that appear to be very distinct and the probable “whys”.  Interesting read.

Excerpt:  ….. we highlight and then set out to explain the oscillating pattern of financial vs. strategic acquirers within overall merger activity. Mergers and Acquisitions occur in great waves of activity with recent troughs, for example, of only a few thousand deals in 2003 and peaks of over ten thousand deals in 1999 and 2006. Within this oscillation of activity there is another shifting pattern: the percentage of so-called financial sponsors (private equity firms) vs. strategic buyers (operating companies) seems to ebb and flow. Aggregate numbers show that the fraction of total deal value acquired by financial sponsors has varied dramatically over the last 25 years with peaks in the late 80s, 90s and the period of 2005-2007. This same pattern is true across many industries and geographies.

Any particular transaction has many factors that drive the ultimate acquirer’s willingness to pay. And many theories propose reasons why particular firms or industries may be ripe for acquisition activity. However, the broad pattern of financial sponsor activity that spans industries and geographies at a given

Read full article via Financial vs Strategic Buyers — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Defining a Joint Venture’s Scope of Business: Key Issues — The Harvard Law School Forum on Corporate Governance

Small business need-to-know and of-interest M&A.

Excerpt:  Early in the discussions about whether and how to form a joint venture [1] — perhaps as the very first significant issue to be resolved — the potential joint venture partners [2] will try to agree on the scope of the venture’s business. That definition is usually embodied in one or more of the venture agreements, and may circumscribe the nature of the venture’s business, potential future lines of business into which the venture may expand, geographic areas in which the venture will or may operate, and how deviations from the venture’s scope will be determined and approved by the venture partners.

As partners negotiate the scope of the venture’s business, they also need to focus on the key corollary provisions of the venture arrangement impacted by the agreed-upon scope. The terms of those provisions will in turn inform the discussion about scope. This alert focuses on factors to be considered as the venture partners discuss two of the core issues that arise in conjunction with the discussion about scope: the parameters of the non-compete, if any, to be entered into by the partners for the benefit of the venture, and the application of the corporate opportunity doctrine to the venture and the venture partners.

Read full article via Defining a Joint Venture’s Scope of Business: Key Issues — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Allocating Risk Through Contract: Evidence from M&A and Policy Implications — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know and news-to-watch.

Excerpt:  Risk allocation provisions (RAPs) are an important part of M&A contracts. In a new research paper, Allocating Risk Through Contract: Evidence from M&A and Policy Implications, I analyze those provisions in the contracts for a representative sample of deals for US targets, and find both wide variation but also clear patterns in when they are used and how they are designed. The patterns I observe reflect multiple economic theories: they show that RAPs are used and designed in light of the information different parties to a deal are likely to have, their incentives during and after the deal, and also transaction costs, especially the costs of enforcing contracts. Despite these patterns, the contracts also show enormous variation in how risk is allocated — and some of this residual variation correlates with the experience of deal lawyers — suggesting that some choices are better than others. Practitioners can benefit from better understanding economic theories, and academics can benefit from better understanding how varied and complex real-world contracts are.

Read full article via Allocating Risk Through Contract: Evidence from M&A and Policy Implications — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Breakup Fees — Picking Your Number — The Harvard Law School Forum on Corporate Governance

Small business M&A need-to-know, of-interest and news-to-watch.

Excerpt:  During the course of negotiations of every public company deal, inevitably the conversation will turn to the amount of the breakup fee payable by a target company to a buyer if the deal is terminated under certain circumstances. Because U.S. corporate law generally requires a target company to retain the ability to consider post-signing superior proposals, a breakup fee is an important element of the suite of deal protection devices (including “no-shop” restrictions, matching rights, etc.) that an initial buyer implements to seek to protect its position as the favored suitor. Speaking broadly, a breakup fee will increase the cost to a topping bidder as it will also need to cover the expense of the fee payable to the first buyer. However, with respect to deal protection terms in general, as well as the amount of breakup fees in particular, courts have indicated that they cannot be so tight or so large as to be preclusive of a true superior proposal. Starting from this somewhat ambiguous principle, the negotiations therefore turn to the appropriate amount for the breakup fee given the particular circumstances of the deal at hand.

Unquestionably, precedent often informs the discussion, and there is a significant amount of statistical data to back up a general proposition that fees “usually” fall in the 3% to 4% range

Read full article via Breakup Fees — Picking Your Number — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Private Equity/Public Target Deals: Mid-Year Update — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know and news-to-watch M&A.

Excerpt:  This post is based on the Schulte Roth & Zabel PE Buyer/Public Target M&A Deal Study: 2012 Mid-Year Update, which is available here. Posts about previous versions of the study are available here, here, and here.

The large private equity buyer/public company segment of the U.S. M&A market (all cash deals over $500 million) was significantly affected in the first half of 2012 by troubles in the U.S., European and global economies. Only six trans­actions within our deal parameters were executed. Five of them had key deal terms generally consistent with our prior observations; the remaining transaction, Insight Ven­ture Partners/Quest Software, had certain key deal terms (“go-shop” period, target break-up fee and buyer reverse termination fee) that were outliers. Accordingly, for certain of our observations below, we have expressed the data including and excluding Insight Venture Partners/Quest Software (“Quest Software”).

Read full article via Private Equity/Public Target Deals: Mid-Year Update — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

NDA Use Restrictions — Use With Caution — The Harvard Law School Forum on Corporate Governance

Small business of-interest, need-to-know, news-to-watch and takeaway advice on M&A — updated with two court case findings.

Excerpt:  This recent court decision in New York, coming on the heels of the Vulcan decisions in Delaware, emphasizes the potential unforeseen consequences to buyers of broad “use restrictions” in NDAs. Parties asked to agree to use restrictions should consider drafting changes to mitigate some of these unanticipated outcomes (e.g., seeking express acknowledgment that the buyer may pursue similar deals or opportunities) while also taking steps (e.g., internal firewalls) to buttress an argument that confidential information was not later misused in violation of the NDA.

Read full article via NDA Use Restrictions — Use With Caution — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

CEO Preferences and Acquisitions — The Harvard Law School Forum on Corporate Governance

Small business need-to-know and of-interest, M&A.  Did you know this?  It just might affect your plans?

Excerpt: We find strong evidence that target CEOs’ retirement preferences affect merger patterns. In data on U.S. public firms from 1992 to 2008, the likelihood of a takeover bid increases sharply when the target CEO reaches age 65

Read full article via CEO Preferences and Acquisitions — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Seven Keys for Firms Considering a Transition Through a Sale or Upward Merger

This article is written from the viewpoint of an accounting firm, but the tips and points can easily be used for other small business sales and upward mergers.

Excerpt: When you are planning for a transition of the partners in your practice through a sale or upward merger…below are seven key things to keep in mind.

When you are planning for a transition of the partners in your practice through a sale or upward merger, it will likely be the most important decision you make regarding your firm. While there are many vitally important items to review, below are seven key things to keep in mind.

Read full article via AccountantsWorld – Extensive resources for accounting, tax and payroll. Accountant, CPA: Join the largest community of CPAs and accountants..  From Accountant’s World

Private Equity Buyer/Public Target M&A Deal Study — The Harvard Law School Forum on Corporate Governance and Financial Regulation

Small business of-interest…..study examines the terms of past M&A deals…  providing good takeaways for small business need-to-know

Excerpt…..We conducted our survey as follows:

We reviewed the treatment of certain key deal terms in all private equity buyer/public company target cash merger transactions involving consideration of at least $500 million in enterprise value [1] entered into during 2010 and 2011, which totaled 37 transactions.

We then compared the treatment of such deal terms in the 20 transactions entered into between Jan. 1, 2010 and Dec. 31, 2010, which we refer to as the “2010 Transactions,” with the treatment of the same key deal terms in the 17 transactions entered into between Jan. 1, 2011 and Dec. 31, 2011, which we refer to as the “2011 Transactions.”

Read full article…..via Private Equity Buyer/Public Target M&A Deal Study — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

“Toehold” Stakes in Target Firms — The Harvard Law School Forum on Corporate Governance

Small business need-to-know…….. the pros and cons of a minority stake (toehold) in anticipated M&A….. key regulations and considerations in play….plus explanations on each consideration.

Excerpt……….Conceding that there is no “right” answer to this question, dealmakers must approach this issue on a facts-and-circumstances basis, focusing on the specifics of a situation including the personalities of the parties and the likely competitive landscape for a possible transaction. An informed decision about employing this tactic also requires an understanding of a number of regulatory, legal and process considerations attaching to taking a toehold position as a prelude to potential M&A activity. Below is a brief, and very simplified, summary of a number of those key considerations:

Read full article…..via “Toehold” Stakes in Target Firms — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Five things you must learn about the new M&A landscape

In just about everything we do …..keeping up with today’s trends, changes and new is an ever more important required task of every leader and manager…..in this article, the M&A landscape is addressed.

Excerpt…….Byron Traynor, CPA, is a managing director at Protiviti, a consulting firm that advises businesses on finance, technology, operations, governance, risk and internal audit. Traynor is the global leader of the company’s transaction services division, which advises companies on mergers and acquisitions. Jack Hagel, CGMA Magazine’s editorial director, caught up with him to talk about the M&A landscape – and what it might mean for finance professionals. Here are excerpts from their conversation. The dialogue has been edited for clarity and length.

Read full article……via Five things you must learn about the new M&A landscape.  From CGMA

The JOBS Act: Implications for Private Company Acquisitions and M&A Professionals — The Harvard Law School Forum on Corporate Governance

Small business need-to-know….

Excerpt………On April 5, President Obama signed into law the Jumpstart Our Business Startups Act (the “JOBS Act”), which as we’ve previously noted represents a very significant loosening of restrictions around the IPO process and post-IPO reporting obligations. While most of the commentary on this legislation has thus far focused on its impact on capital markets matters, there are implications for private company mergers and acquisitions as well.

Read full article……..via The JOBS Act: Implications for Private Company Acquisitions and M&A Professionals — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Financing-Motivated Acquisitions — The Harvard Law School Forum on Corporate Governance

Small business of-interest and need-to-know/ponder.  M&A

Excerpt………Managers often justify acquisitions with the logic that they can add value to targets by facilitating the target’s ability to invest efficiently. In addition to the operational synergies emphasized by the academic literature, financial synergies potentially come from the ability to use the acquirer’s assets to help finance the target’s investments more efficiently. However, examining this view empirically is difficult, since for most acquisitions, one cannot observe data on target firms on subsequent to being acquired. Because of disclosure requirements in European countries, we are able to construct a sample of European acquisitions containing financial data on target firms both before and after the acquisitions.

Read full article……..via Financing-Motivated Acquisitions — The Harvard Law School Forum on Corporate Governance and Financial Regulation.

Contingent Consideration in Bridging Valuation Gaps — The Harvard Law School Forum on Corporate Governance

Small business need-to-know and news-to-watch M&A.

Excerpt…….The recovering, but still uncertain, economy and real estate markets have led to diverging opinions and concerns over the future value of a target’s assets which might otherwise prevent agreement on transaction pricing. As discussed in prior memos, contingent consideration structures have for years been used to bridge differences between buyers and sellers in uncertain times. With the burgeoning trend of increased M&A activity involving smaller banks, it is important to remember that these structures, while requiring careful thought, can be useful in both small and large deals alike to creatively address pricing challenges

Read full article……via Contingent Consideration in Bridging Valuation Gaps — The Harvard Law School Forum on Corporate Governance and Financial Regulation.