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M&A > ABA Private M&A Study > Flashcards

ABA Private M&A Study Flashcards

1
Q

% of deals where Buyer has right to approve closing payment?

A

26%

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2
Q

The ________ should carve “deferred tax liabilities” out of the definition of Current Liabilities because ?

A

Buyer should b/c they do not represent “real” tax liabilities; deferred tax liabilities do not represent a fixed statutory obligation to pay taxes in a future year.

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3
Q

Buyer goal re def of “Losses”?

A

Broad to cover lots of indem claims. Consider including incidental, consequential, special or indirect damages (including loss of revenue, diminution in value).

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4
Q

Seller goal re def of “Losses”?

A

Narrow it – limit the definition to actual out-of-pocket losses or add express exclusions for incidental, consequential, special or indirect damages from the definition.

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5
Q

Market to include “prospects” in def of MAE?

A

No. Only 12-17% include “prospects” of target. It’s aggr. pro-Buyer to include prospects.

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6
Q

% of deals with separate PP escrow?

A

31% have separate PP escrow.

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7
Q

Among deals w/o a PP escrow, where does money come from by % of deals? From Indemn Escrow? Not?

A

57% from indemn escrow and 24% not from indemn escrow. Others silent or no escrow.

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8
Q

What % of deals have collar for post-closing PP adjustment? (pro-seller)

A

Only 9% of deals have min for post-closing PP adjustment. Threshold would help seller since adjustments usually benefit buyer.

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9
Q

% of deals with earnouts?

A

25%

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10
Q

Among earnout deals, % where metric is earnings/EBITDA vs. revenue vs. other?

A

EBITDA = 30%; revenue = 32%; other = 30%

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11
Q

What % of deals with earnouts include convenant to run bus. consistent w/ past practice? % with covenant to maximize earnout?

A

20% of earnouts have past practice covenant.

7% have maximize earnout covenant.

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12
Q

% of deals where earnout accelerates on CIC? (pro-seller)

A

Accelerates on CIC in 22% of deals.

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13
Q

Deals where buyer can offset indemnity payments against earnout: % w/ express yes, % silent, % with express no. (pro-buyer)

A

Express yes = 68%
Silent = 27%
Express no = 0%

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14
Q

W/r/t earnout, % deals with express disclaimer of fiduciary relationship? (pro-buyer)

A

15% have express disclaimer of fiduciary relationship re earnout.
79% don’t have such a provision.

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15
Q

MAE definition forward looking in what % of deals? (i.e., “… or could reasonably be expected to have a material adverse…”)

A

67% “would be expected to have MAE”

20% “could be” or “could reasonably be expected to have MAE”

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16
Q

MAE def includes target’s ability to consummate transaction?

A

Yes, in 57% of cases.

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17
Q

MAE def generally includes buyer’s ability to operate business post-closing?

A

No. Only included in def in 4% of cases.

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18
Q

When do you need sufficiency of assets rep?

A

Where purchased assets/entity don’t operate on standalone basis.

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19
Q

Financial statements fairly present target: % of deals including rep? % GAAP qualified?

A

Rep included in 99% of deals.

22% GAAP qualified.

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20
Q

“No undisclosed liabilities” rep: give 1. pro-buyer version, and 2. pro-seller version.

A
  1. pro-buyer: “Target has no liability except for liabilities reflected or reserved against in the Balance Sheet and current liabilities incurred in ordinary course of business since B/S date.”
  2. pro-seller: “Target has no liability of the nature required to be disclosed in a balance sheet prepared in accordance with GAAP except for…”
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21
Q

% deals with “no undisclosed liabilities” rep?

A

94%

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22
Q

Among deals with “no undisclosed liabilities” rep, % GAAP qualified (pro-seller) vs. all liabilities (pro-buyer)?

A

22% GAAP qualified

78% are all liabilities

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23
Q

10b-5 rep: 1. what is it? 2. what % deals have it? 3. what % is it knowledge qualified in deals that have it?

A
  1. reps no untrue material fact or omission that were misleading.
  2. 19-44% of deals have 10b-5 rep
  3. 27% are of deals with that rep are knowledge qualified.
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24
Q

In sign-then-close deals, % with covenant to notify buyer of breaches?

A

68% expressly req’d to notified.

32% silent.

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25
Q

Almost all deals have cov. to operate in ord course b/t sign and close. % qualified by efforts standard? % qualified by consistent with past practice?

A

16% qualified by efforts standard.

89% qualified by consistent with past practice.

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26
Q

Instead of 10b-5 rep, seller would seek to add?

A

Seller wants (i) Seller rep “No Other Representations or Warranties” and (ii) Buyer rep re “Independent Investigation.”

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27
Q

Notice of certain events covenant req’s seller notify buyer of anything that may cause (3 things).

A
  1. MAE
  2. breach of seller R&Ws
  3. trigger buyer’s termination right.
    The seller should try to provide for notices to cure any inaccuracies or breaches of the seller’s representations.
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28
Q

% of deals where R&W are true at signing and closing?

% where just true at closing?

A

57% signing and closing.

42% just closing

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29
Q

Closing condition: % for “no legal proceedings challenging transaction”? And % where it’s only for govt proceedings?

A
  1. 67% of deals had no proceedings closing condition.

2. Of those that had it, 72% were any proceedings and 28% was only govt. proceedings.

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30
Q

Closing condition: % for pending vs threatened “no legal proceedings challenging transaction”?

A

66% had pending and threatened.

30% had pending proceedings only.

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31
Q

% deals with pro-sandbagging provisions? % silent? % with anti-sandbagging?

A

41% have pro-sandbagging language
49% silent
10% anti-sandbagging

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32
Q

Pro-sandbagging applies to indemnification only in what % of deals? In what % does it apply to indemn and walk right?

A

43% indem only.

50% indem and walk right.

33
Q

% of deals with “no other reps” and “non-reliance on extra-K”? % with just “no other reps”? Neither?

A

35% have both.
21% have just “no other reps”
35% have neither

34
Q

% deals where indemn limited to out of pocket damages?

A

9% of deals so limited. Pro-seller.

35
Q

% deals where indem expressly covers diminution in value? % silent? % where expressly excluded?

A

14% expressly included
69% silent
17% expressly excluded

36
Q

Consequential damages: % expressly excluded and % silent?

A

54% expressly excluded

44% silent

37
Q

Punitive damages: % expressly excluded and % silent?

A

75% expressly excluded

25% silent

38
Q

Incidental damages: % expressly excluded and % silent? % expressly included?

A

17% expressly included
67% silent
17% expressly excluded

39
Q

% deals with tipping basket v deductible?

A

59% deductible
32% tipping basket
5% hybrid

40
Q

Average tipping basket as % of transaction value?

A

56% is 0.5% or less.
32% is 0.5% - 1.0%
11% is 1.0 - 2.0%

41
Q

Median deductible as % of transaction value?

Median tipping basket as % of transaction value?

A

deductible is 0.5%.

tipping basket is 0.4%.

42
Q

All baskets/deductibles cover R&W. What % cover breach of covenants?

A

27% cover breach of covenants.

43
Q

% of deals with de minimus?

A

30%

44
Q
  1. % of deals with any materiality scrape (for losses or breach)?
  2. Among deals with scrape, % limited to calculation of losses?
A
  1. 70-84% of deals have scrape

2. Losses only at 43-58%; full scrape at 19-57% (ABA/SRS divergence)

45
Q

Mean and median for cap amount as % of transaction value?

A

Mean cap = 16.6%

Median cap = 10%

46
Q

Carveouts from cap and basket (top 12 from most common to least).

A
  1. Fraud
  2. Due authority
  3. Capitalization
  4. Due Organization
  5. Taxes
  6. Brokers
  7. Ownership of shares
  8. Intentional Breach of reps or covenants
  9. No conflicts
  10. ERISA and E/B
  11. Environmental
  12. IP
47
Q

% of deals with indemnification as exclusive remedy?

A

94%, and 4% more are silent.

48
Q

Carveouts from INDEMNIFICATION as exclusive remedy (top 4 from most common to least).

A
  1. Fraud
  2. Equitable remedies
  3. Intentional misrepresentation
  4. Breach of covenant
49
Q

Escrow holdback as % of transaction value is typically?

A

It’s all over the map. Anywhere from 3% to 15% of transaction value.

50
Q

3 topics get standalone indemnities in what % of deals each:

A
  1. taxes (40%)
  2. Environmental (5%)
  3. ERISA (3%)
51
Q

% of deals with reduction in indemnification claims for tax benefits?

A

48% have express reduction. 52% silent

52
Q

% of deals with requirement that buyer mitigate losses?

A

44% require mitigation. 56% silent

53
Q

% of deals with reduction in indemnification claims for insurance proceeds?

A

81% include reduction. 19% silent.

54
Q

Buyer and Seller want what w/r/t “No Undisclosed Liabilities Representation”?

A

Buyer wants no undiscl. liab other than B/S, discl. sched.

Seller wants to narrow rep to “except as would be disclosed liability on GAAP B/S.”

55
Q

Buyer and Seller want what w/r/t “Full Disclosure/(10b-5) Representation”?

A

Buyer wants full disclosure, with no knowledge qualifier.

Seller wants to delete rep or insert knowledge qualifier and/or limit it to the language of 10b-5.

56
Q

If there are multiple obligations secured by the escrowed funds, what do Buyer and Seller want w/r/t number of accounts?

A

Buyer wants one account with all funds and access to all funds regardless of the obligation to be satisfied.
Seller wants separate accounts with no cross-draw ability and with earlier disbursement for some funds.

57
Q

Dual-track structure means? Can wrap things up in as little as six weeks. Dual track irrelevant if you’re candidate for DGCL 251(h) to eliminate back end and do short form.

A

(1) the launch of a tender offer (FASTER) and (2) filing of a preliminary proxy statement with the SEC (SH vote certainty).

58
Q

For which deals does dual-track structure make the most sense?

A

Deals with a high minimum tender offer thresholds — well above a simple majority

59
Q

For which deals does dual-track structure NOT make sense?

A

The structure makes less sense for deals likely to draw a second look from regulators – speed isn’t as important so you can go with a simple one-step merger.

60
Q

Deal protection covenants

A
  1. No-shop; 2. Go-shop (3-8 weeks); 3. Force the vote
  2. Matching rights
  3. Bidder can get stock options (under 20%) upon termination
  4. Bidder can get option to purchase asset (crown jewel) upon termination
  5. Break fee
  6. Lock-up a block of stock
61
Q

What triggers Revlon? 3 situations.

A
  1. initiates sale process
  2. in response to offer, abandons long-term strategy
  3. approval of transaction would result in sale or CoC
62
Q

If a PE fund forms a shell as buyer and isn’t party to the agreement, will DE courts allow seller to seek remedy against fund?

A

No, Delaware courts will not read in a contractual obligation into an acquisition agreement of an ultimate purchaser that is not a party to the agreement.

63
Q

Who wants tax benefit setoff in indemnity? Who wants setoff for insurance from indemnity?

A

Seller wants setoffs to reduce amounts owed.

64
Q

Delaware law gives parties [more or less?] flexibility to shorten the statute of limitations contractually than the laws of California and New York? Pro-Seller

A

Delaware gives parties more flexibility to shorten statute of limitations, BUT DO IT EXPRESSLY IN CHOICE OF LAW provision b/c it’s procedural and not substantive.

65
Q

What is Del stat of lim for K claims? Can it be shortened or lengthened by K?

A

3 years in DE to bring K claim. It can be shortened by K, not lengthened.

66
Q

Do Disclaimers of Reliance and Accuracy Clauses Bar Fraud Claims?

A

They likely do NOT bar fraud claims in Delaware. You NEED AN EXPRESS STATEMENT THAT BUYER NOT RELYING ON EXTRA-K STATEMENTS to bar fraud claims.

67
Q

Methodology for PP adjustment?

A

55% GAAP consistent w/ past practice; 7% more GAAP as modified by schedule

68
Q

Buyer can operate post-closing in buyer’s discretion regardless of earnout in what % of deals?

A

32% expressly include it

69
Q

Express “earnout creates no fiduciary obligation” provision?

A

In 13-18% of deals.

70
Q

Buyer-favorable formulation of “no undisclosed liabilities” rep?

A

Seller has no liability except for liabilities reflected or reserved against in the Balance Sheet or the Interim Balance Sheet and current liabilities incurred in Seller’s ordinary course of business since the date of the Interim Balance Sheet.

71
Q

Buyer-favorable formulation of “no undisclosed liabilities” rep

A

Seller has no liability of the nature required to be disclosed in a balance sheet prepared in accordance with GAAP [or which could not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect], except for liabilities reflected or reserved against in the Balance Sheet or the Interim Balance Sheet and current liabilities incurred in Seller’s ordinary course of business since the date of the Interim Balance Sheet.

72
Q

No undisclosed liabilities usually buyer-favorable or seller-favorable formulation?

A

59% buyer-favorable; 41% seller favorable; 3% knowledge qualified

73
Q

Full disclosure rep included in what % of deals?

A

5% – “Seller does not have Knowledge of any fact… that may materially adversely affect the assets, business, prospects, financial condition or results of operations of Seller that has not been set forth in this Agreement or the Disclosure Letter.”

74
Q

“No other reps” rep included in what % of deals?

A

57%

75
Q

“Non-reliance” rep included in what % of deals?

A

35 -40% – “Buyer is not relying and has not relied on any representations or warranties whatsoever except those provided herein”

76
Q

% of deals with seller obligation to notify of breach of R&Ws and covenants?

A

Approx. 67%

77
Q

% of private deals with no-shop/no-talk covenant?

A

90% of deals had covenant, of which 5% had fiduciary exception

78
Q

Where Indemnifying Party controls defense of third-party claim, must they first acknowledge indemnity obligation first?

A

No in 62%; yes in 38% of deals

M&A (8 decks)

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