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.The broker asks you to raise your bid; however, the amount of the competing bid is not disclosed.Especially in larger M&A transactions, the tendency is to say,“What is another $1 million to own this $100 million asset?”Final Bid Strategies/Structuring the Deal 125Deal teams need to guard against being “incrementalized”to an amount that does not make sense.All of the individual issues mentioned in this chapter—target employment, contract terms, closing purchase price, and so on—can be negotiated by the buyer at the closing table.It really comes down to which party has the leverage.In a robust auction with many potential buyers, sellers have the advantage.However, in the more unusual cases where there is a motivated seller and only one buyer, the buyer has significant leverage to manage these areas.CHAPTER 8 SUMMARY1.Experienced M&A teams can use various bidding strategies and deal structures to save a deal that otherwise might not get done.2.Expectation gaps that arise between buyers and sellers include purchase price differences, deal structures, timing requirements, taxes, treatment of target employees, and other circumstances unique to each deal.3.A stock purchase price is based on a simple exchange of the target’s shares for shares in the buyer.The ratio of shares held to shares received from the buyer iscalled the exchange ratio and can adjust over time.4.A balance sheet purchase approach uses the target’s balance sheet plus a purchase premium to calculate the total purchase price.This method automatically adjusts for changes in the target’s net asset value betweensigning and closing.5.Earnouts can be used to close a gap between the seller’s price expectation and what a buyer is willing to pay.It is a form of contingent consideration that is paid only if the target meets certain performance targets postacquisition.6.Earnouts can more closely align the interests of the buyer with those of the seller, as both are motivated to grow the company postclosing.However, legal issuescan arise if the acquisition does not turn out as planned.7.Royalties, consulting agreements, and employment contracts are other methods for providing a contingent purchase price to the seller over time.Strict care should126CHAPTER 8be taken to make sure that the accounting for theseagreements is in accordance with GAAP.8.Some sellers may be willing to accept a lower purchase price if buyers can satisfy their tight timing commitments.9.Asset and stock purchases are different methods of transferring ownership of the target to the buyer.Each form of acquisition has certain advantages and disadvantages for the buyer and the seller.10.Asset purchases generally provide more flexibility for buyer and seller to carve out assets that are a concern and still close the transaction.11.Stock purchases can allow for a simpler transaction, without the need to retitle individual assets and theeffects of a change in control on customer and supplier agreements.However, buyers may be more reluctant toenter into these deals because of the assumption ofseller liabilities postclose.12.A 338H10 election allows the buyer in a stock sale to treat it as an asset sale for tax purposes, providing significant tax benefits.13.Buyers who show a willingness to work with sellers on deal structure may have an advantage in competitiveauction situations.14.Some sellers are very concerned about how their employees will be treated postclose.Sharing plans for integration and working to accommodate sellers’ hotbuttons can help soothe these concerns.15.Final contract negotiations will often center around an allocation of risk between buyer and seller for knownand unknown liabilities.16.Carving sensitive assets out of the transaction can often solve differences of opinion between buyer and sellerand put a deal back on track.17.Deal teams for the buyers need to be careful about last-minute seller requests.They need to balance theirstrong desire to get a deal done with a healthy amount of skepticism about the deal.C H A P T E R 9Legal, Regulatory,and Other IssuesA business development professional’s ability to manage the legal and regulatory functions can have a major impact on (1) getting a tough deal closed, rather than walking away, and (2) ensuring that the asset/stock purchase agreement contains adequate protections for the buyer against unexpected postclosing events.As in many other areas, the M&A professional walks a fine line, trying to ensure that insignificant issues don’t derail the deal, while still maintaining a balanced perspective on items that justify attention.Efficient deal teams develop a sense of trust and perspective between the business development leader and both inside and external legal counsel to work through difficult issues.This chapter will discuss best practices in working with the legal function and also highlight particularly sensitive issues in the legal, regulatory, and accounting areas.Entire textbooks have been written on legal issues as they relate to the M&A profession.For purposes of this text, we will outline the main objectives of the legal process in an M&A context and certain critical areas that have arisen in recent years.I.LEGAL ISSUESA.Inside versus Outside CounselThe size, complexity, and timing of the deal normally dictate whether the team includes the buyer’s in-house counsel, outside legal counsel, or both.Many firms prefer to “outsource”the legal work because 127Copyright © 2007 by The McGraw-Hill Companies, Inc.Click here for terms of use.128CHAPTER 9I Buyers may not have enough internal resources to work on the M&A project and handle their normal job responsibilities as well [ Pobierz całość w formacie PDF ]

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