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Work > M&A Basics/Structuring > Flashcards

M&A Basics/Structuring Flashcards

0
Q

Regulation FD: basic rule

A

If a company shares material non-public information with someone, it must also disclose that information publicly.

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1
Q

Regulation FD - what does FD stand for

A

Fair disclosure

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2
Q

“Open Lane” structure

A

Board agrees to consider any competing bid submitted over a very short window. Used in situations in which a controlling shareholder has agreed to vote in favor, to avoid a lockup as in Omnicare

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3
Q

Open Lane examples

A

Thoma Bravo / Deltek
Starbucks / Teavana (6 am the next day)
Genessee & Wyoming / RailAmerica
Bayer / Schiff Nutrition (2012, $1.2 bn) - Reckitt Benckiser topped bid and won

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4
Q

Open Lane typical window period

A

30 days

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5
Q

Buyers: % strategic / % financial

middle-market, $10m - $1bn+, U.S., HL

A

60 / 40

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6
Q

Financial buyers: % platform / % add-on

middle-market, $10m - $1bn+, U.S., HL

A

88% / 12%

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7
Q

Transaction structure: % stock / % asset

middle-market, $10m - $1bn+, U.S., HL

A

80 / 20

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8
Q

Consideration: % cash / % stock / % hybrid

middle-market, $10m - $1bn+, U.S., HL

A

79% / 1% / 20%

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9
Q

% of deals with earnouts

middle-market, $10m - $1bn+, U.S., HL

A

~15%

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10
Q

% of deals with rollovers

middle-market, $10m - $1bn+, U.S., HL

A

18%

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11
Q

% of deals with seller notes

middle-market, $10m - $1bn+, U.S., HL

A

4%

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13
Q

3 standards of review in Delaware

A
  1. Business Judgment standard
  2. Enhanced scrutiny (Revlon for sale, Unocal for defense)
  3. Entire fairness
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14
Q

Entire fairness standard: 2 basic conditions

A
  1. Burden of evidence and burden of proof shift to defendant (typically seller board and acquiror)
  2. Fair price and fair process
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15
Q

Median seller note as % of purchase price

middle-market, $10m - $1bn+, U.S., HL

A

~10%

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16
Q

Ways to acquire a company

A
  1. Merger
  2. Tender offer
  3. Stock purchase
  4. Asset purchase
17
Q

Indicative timeline for cash tender offer

A

-25 days - prepare materials
0 - announce offer
10 business days - 14D-9 deadline for target
15 - expiration of initial HSR waiting period
20 business days - expiration of minimum offer period
21 business days - 50/90 long/short-form thresholds

18
Q

Cash tender offer indicative timeline: day -25 detail

A

Prepare materials required to be filed with the SEC and mailed to shareholders

19
Q

Cash tender offer indicative timeline: C-day detail

A

Announcement of intention to commence tender offer, usually by press release
File Schedule TO with SEC
Mail offering materials to shareholders
File for regulatory approvals
During offering period, shareholders may withdraw tendered shares at any time

20
Q

Cash Tender Offer, +10 business days detail

A

Rule 14D-9 deadline for target to formulate and publicly announce its position with respect to offer

21
Q

Cash tender offer indicative timeline, +15 days detail

A

Expiration of initial waiting period under HSR

If second request is made, waiting period expires 10 days after substantial compliance with second request

22
Q

Cash tender offer, +20 business days detail

A

Expiration of minimum offer period, assuming no extension

23
Q

Cash tender offer, +21 business days detail

A

If acquire at least 90% of shares in the tender offer, execute “short-form” merger to eliminate public stub
If acquire less than 90% but more than 50%, pursue “long-form” merger

24
Q

Long-form merger indicative timeline

A

-20 days: Initiate potential transaction
-5 days: understanding in principle
0 (A-day)
Merger signing
Public announcement
Investor/analyst calls
+5 - HSR filing
+21 - S-4/proxy statement filed
S-4 if consid. includes stk
Assm timely PF statemnts
+30 biz - HSR waiting period expires
+51 - SEC comments received
Typclly responds 30 days
+65 - S-4 effective/proxy cleared
+66 - proxy/prosepctus mailed to shareholders
+96 shareholder meeting
In general, if S-4 filed, shareholder meeting must be held at least 20 business days after mailing

25
Q

Merger section in Delaware GCC

A

251

26
Q

Shareholder approval of merger?

A

Constituent parties to merger

27
Q

Tender offer vs. exchange offer

A

Tender offer = cash consideration

Exchange offer = stock consideration

28
Q

Minimum U.S. offer period for tender offer

A

20 business days

29
Q

Stock purchase: tax free organization

+ funny motto

A

“B” reorganization

no boot in a “B”

30
Q

Asset purchase tax-free structure

A

“C” reorganization

requires sale of “all or substantially all” assets

31
Q

Which side typically prefers stock purchase, and why

A

Seller

“Outside” basis typically higher than “inside” bases, so taxable gain lower
Stock purchase easier to execute - all assets/liabilities transferred to Buyer

32
Q

Which side typically prefers asset purchase and why

A

Buyer

Takes assets of Seller at a stepped-up basis and can amortize step-up generally over 15 years (tax-deductible goodwill amortization)

33
Q

Three forms of merger in the U.S.

A

Direct

Forward Triangular

Reverse Triangular

34
Q

Theories of the motivations for mergers

A
  1. Economic efficiency (synergies)
  2. Power base of management
  3. Transfer wealth from one class of stakeholders to another (typically leverage to transfer wealth to equity)
35
Q

Theories of the motivations for divestitures

A
  1. Focus on core competencies
  2. Equity story
  3. Capital markets access
36
Q

TRA 86

A

The Tax Reform Act of 1986 eliminated many of the potential tax benefits available in a merger, particularly in acquisitions of freestanding C corporations.

  1. Eliminated most situations in which value of step-ups exceeded costs of obtaining them
  2. Eliminated most situations in which value of acquired NOLs exceed costs of obtaining them

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