S-79 Packet 4 Flashcards
What is a merchant bank?
A Broker/Dealer internal PE shop
What else could synergies be called? Are they assumed pre or post-tax?
Expense synergies / pre-tax assumed
What document can you use to learn about fees you get for a deal?
An engagement leter
What type of fees does a buy-side advisor seek?
Seek to earn advisory fees and underwriting fees
What is Target Board of Directors responsibility?
Fiduciary obligation to shareholders to ensure company sold for a reasonable price
What are 3 characteristics of an LBO?
1.) Strong operating cash flows 2.) Opportunity for operational improvements 3.) tax-deductibility of interest expense
Who benefits from a step-up cost basis in an asset sale?
Who benefits from stepped-up basis for 338h(10)
The buyer
What is a PE firms pure exit from an LBO?
A sale to other company
What are 3 characteristics of a dividend recap?
1.) No buyer interest 2.) Market not susceptible to IPO 3.) low interest rate environment
What are some disadvantages of cash in the purchase consideration?
- ) trigger tax consequences
2. ) interest expense from debt financing
What is the exchange ratio?
(Offer price per share - cash/share) / stock price of acquirer
Who assumes the risks in a fixed exchange ratio?
Target and Acquirer share risks
Who assumes the risks in a floating exchange ratio?
The acquirer
What does a deal collar help limit?
Helps limit deal fluctuations
Will the teaser include the name of the company?
No
What is included in a Confidentiality Agreement (CA)?
- ) Term “length of time it extends for”
- ) No clubbing - no joint bids
- ) Non-solicitation
What is the primary 1st round due diligence document?
Information Memorandum or Detailed Memorandum or Descriptive Memorandum
What is the order of documentation during an auction?
- ) Seller signs an engagement letter with an advisor
- ) Teaser sent to prospective buyers
- ) Confidentiality Agreement signed
- ) Detailed Memorandum sent to buyers
- ) Receive Indications of Interest (IOIs), Letter of Intent (LOI), Statement of Interest (SOI)
What are the steps in an accretion/(dilution) analysis?
1.) Calculate Acquirer diluted shares outstanding
2.) Calculate Acquirer standalone EPS
3.) Calculate Pro forma Net Income
- Target After-tax EBIT
+ After-tax synergies
- Interest expense (tax-effected)
4.) Calculate new shares issued in the transaction
5.) Add Acquirer shares to new shares issues
6.) Compare Acquirer standalone EPS to pro forma EPS
What is the Pro forma EPS for the test?
$1.15!!
What does a sell-side adviser doing due diligence on an all cash deal concerned about?
Buyers ability to pay
Who populates the data room?
Sell-side advisor
Who provides source data for the data room?
The target
Who manages the data room IT?
3rd party vendor
What should you do If you discover non-public information about a different company during due diligence?
Notify compliance so they can put the stock on the restricted list
What is the Final Bid Procedures Letter
Instructions for submitting the final bid
What are four required disclosures in a fairness opinion?
- ) Author is receiving compensation contingent on the deal closing
- ) Disclose any material relationships with parties in the last two years
- ) Must disclose if data provided to prepare the opinion was verified by a third party
- ) Must disclose if it considers the fairness of compensation to Board vs. other shareholders
When is a deal announced?
Generally after signing the definitive announcement?
What are a few reasons a deal may not close?
- ) Couldn’t secure financing
- ) Didn’t receive shareholder approval
- ) Didn’t receive regulatory approval
In a private sale, what process could a seller initiate to get a higher price?
Go-shop
What is the wait period for HSR Act of 1976 approval
30 days
Which parties file a proxy statement in a merger?
Buyer and seller file jointly
Do you always have a preliminary proxy in a merger?
Yes, you do.
What registration statement can you learn about the terms of a transaction?
S-4
Why might a purchaser in a TO qualify for a minimum number of shares
To avoid ending up with a non-controlling stake
When do Acquirer stockholders have to approve a deal?
Only if deal would increase acquirer shares by 20%
What must happen for any communication with public between signing and closing?
It must be filed with the SEC no later than the date of first use
Company X works in a perfectly competitive market. P is targeting organic sales growth of 15% vs. an expected industry growth rate of 10%. How could it achieve this objective?
- Change advertising strategy to increase market share
2. Target a niche market with a new product.
How long must a tender offer remain open?
20 BUSINESS days
Issuer launches a TO on August 1st, could it terminate on August 21st?
No, because it hasn’t been 20 days
How long do changes to terms must remain available in a TO?
10 days
Is a target CEO who is tendering shares allowed to get an employment contract with the new firm?
Yes, with approval of acquirers compensation committee
What is the clearing price in a Dutch auction?
The lowest price which all shares will be tendered
What happens to bids above the clearing price?
They are not accepted
What is the safe Harbor for repurchases by an issuer?
Anytime but 1.) the 1st trade 2.) last 30 minutes of trading
How many market makers can an issuer use to repurchase shares?
1 market maker per day
What is the safe harbor for actively trading securities (ie. 1 million ADTV, $150 mm public float)
Anytime but 1.) the 1st trade 2.) last 10 minutes of trading
What is the acceptable purchase price for repurchases by an issuer (ie. Rule 10b-18)
No higher than the greater of:
- ) last independent bid
- ) last sale price
What type of restructuring does a creditor have to file a proof of claim?
Chapter 7 bankruptcy
Who can file for a Chapter 11 bankruptcy (can be either a reorganization or liquidation)?
A company or its creditors
In Chapter 11, what happens to the board?
They remain in place
What is the role of a trustee in a Chapter 11 bankruptcy?
- ) administer bankruptcy
- ) oversee debtor operations
- ) liquidate and distribute funds to creditors
What is the Unsecured Creditors Committee?
Largest unsecured creditors appointed by US DOJ trustee
What are the responsibilities of the Unsecured Creditors Committee?
- ) Negotiate with DIP lenders
- ) Help shape reorganization plan
- ) Investigation of conduct
What is a Section 363 sale
An asset sale by a company in bankruptcy
What is an APA?
Asset Purchase Agreement
What will never be in an APA?
debt covenants
What are examples of priority claims in a bankruptcy?
Admin claims/expenses (lawyers, bankers, trustees)
B.) Recent employee wages (earned within 180 days of bankruptcy)
C.) Recent pension contributions (earned within 180 days of bankruptcy)
D.) Taxes
What is the order of the distribution of assets?
- ) Secured creditors
- ) Priority claims
- ) Unsecured creditors
- ) Subordinated, mezz, or convertible debt
- ) Preferred Stock
- ) Common stock and warrants
