MERGERS & ACQUISITION – BEECHERT FALL 2016
INTRODUCTION
Why be an M&A lawyer?
Broad exposure to many areas of law
Lending and Indentures
Real Estate
Labor & Employment
Broad exposure to many skills to be an effective transactional lawyer
Interacting with clients
Interacting with other counsel
Advising clients
Decision making
Planning and organization
Task completion
What drives M&A?
Economic Growth/Strong Economy
Other factors
Build up of conglomerates
Hostile M&A
Growth of private equity and high yield (junk) bonds
Easy money (covey light bonds)
What drives M&A today?
Increased corporate cash
Historically low interest rates
Private equity inventory
Stock valuation
Tax or regulation issues – inversion
Economies of scale – companies sell similar products
Vertical integration – up and down the chain
Market power – buy competitor to reduce competition
Access to new markets/products – e.g. chicken company buys beef company
Access to new technology/patents – pharmacy with one drug buys another bigger pharmacy for other patents/technology
Financing the Acquisition
Stock (e.g. stock for stock)
Doesn’t require outlay of cash
If stock value is strong, greater purchasing power
Readily available
Shareholder base grows—target shareholders stil invested
Tax free generally
Value can fluctuate
Deal delay
Cash (e.g. cash for stock)
It’s on the balance sheet
Financing – Debt
Leveraged loans – commercial banks (higher interest rate)
Bond offering – underwriters/the “street”
Benefits of debt
Preserves existing cash
Some leverage is good, interest is deductible
Company’s performance needs to support debt
Payment and covenants
Another constituency – debt holders
Financial buyers have no other choice
Others can be debt (e.g. bonds), earn-out, or a mix of any of these.
Acquisition (or Purchase) Agreement
Merger Agreement – generally public deals
Stock Purchase Agreement – Always private deals
Asset Purchase Agreement – Always private deals
Equity – generally the stock or shares issued by Company representing ownership of the business.
Operating company – The entities that hold operating assets and general revenue.
STOCK PURCHASE AGREEMENT
Basic Deal Timeline
Under contract
Post Closing
Non-Disclosure Agreement
Provisions for keeping secrets
Due Diligence
Getting secrets
Private Transactions
Purchase and sale of all or part of a business not involving the sale or change to a Seller’s public stock.
Seller can be public or private entity
If seller is public entity, it would be selling a sub or a select group of assets
No public (i.e. SEC) filings required
May or may not be publicly announced
Stock v. Asset Transactions
Stock Transaction
Purchase and sale of the stock (shares, equity, LLC interests, etc.) which is not publicly listed and traded.
Buyer has the company.
Certainty of what you are acquiring
No need to transfer assets/employees/real estate, etc.
No assignments/consents (except perhaps real estate); no leverage given to third-parties.
Any favorable tax attributes (e.g. NOLs) of the target stay with the target.
Less disruptive to business and its relationships with suppliers and customers.
Board action typically not required
Seller likely gets capital gains treatment; plus no corporate tax at target company level.
Seller not liable for any of the target company’s liabilities except as expressly agreed.
“Assume” all of the liabilities—known/unknown, contingent
No tax step up
Can’t easily pick and choose assets to keep
Asset Transaction
Purch
e or will be at the Closing, deemed to constitute and shall not be taken into account in determining the occurrence of a Company Material Adverse Effect: (i) any effect or change that results from the announcement of the execution and delivery of this Agreement, and (ii) any effect or change that results from the taking of any action required pursuant to this Agreement or expressly permitted by the written consent of Purchase pursuant to this Agreement.
Sale of shares and closing
Purchase and Sale à 2.01
Seller agrees to sell to Purchase, and Purchaser agrees to purchase from Seller, all of the right, title and interest of Seller in and to the Shares at the Closing on the terms and subject to the conditions set forth in this agreement
Purchase Price à 2.02
[Subject to the adjustment, if any, made pursuant to Section 2.05 hereof,] the aggregate purchase price for the Shares is $______ (the “Purchase Price”), payable immediately available United States funds at the Closing in the manner provided in section 2.03.
Article V – Covenants
Seller covenants and agrees with Purchaser that, at all times from and after the date hereof until the Closing and, with respect to any covenant or agreement by its terms to be performed in whole or in part after the Closing, for the period specified therein or, if no period is specified therein, indefinitely, Seller will comply with all covenants and provisions of this Article V, except to the extent Purchaser may otherwise consent in writing.
