FOREWORD
PREFACE AND ACKNOWLEDGMENTS
Chapter 1 Getting Started in Mergers and Acquisition
Introduction * Key Terms * About Our Question-and-Answer Format * Concluding Comments * Exhibit 1-1: Global M&A Transaction Value (1988 vs. 2018) * Exhibit 1-2: The M&A Process * Notes
Chapter 2 Strategy
Introduction * Strategic Planning * The Role of M&A in Strategic
Planning * Alternatives to M&A * SWOT Analysis * Disclosure of
Strategy * Levels of Strategy * Four Types of M&A Strategy * The Search
Process * Brokers and Finders * Bankers * Initial Regulatory and Legal
Considerations * Concluding Comments * Exhibit 2-1: Outline for a Typical
Strategic Plan * Exhibit 2-2: M&A in a Strategic Decision Tree * Exhibit 2-3:
Range of Structure for Business Collaboration * Exhibit 2-4: Sample SWOT
Analysis Questions * Exhibit 2-5: Sample Checklist of Assets for Use in
Complement/Supplement Analysis * Exhibit 2-6: Sample Checklist of Risks for
Use in Seeking Complementary Acquisitions * Exhibit 2-7: Sample Strategy
Statements * Exhibit 2-8: What Is Alphabet? * Exhibit 2-9: Examples of
Options Embedded in Strategic Acquisitions * Exhibit 2-10: The AI Acquisition
Race * Exhibit 2-11: Sherwin-Williams-Vertical Strategy Leads to Horizontal
Move * Exhibit 2-12: A Guide to M&A Decisions * Exhibit 2-13: Opportunity
Prioritization * Exhibit 2-14: Premerger Notification Thresholds Under Hart-
Scott-Rodino * Appendix 2A: Types of Organizational Structure * Appendix 2B: Checklist of Assets * Appendix 2C: Horizontal Merger Guidelines * Appendix 2D: Tesoro Strikes Gold in California * Notes
Chapter 3 Valuation and Modeling
Introduction * Valuation Fundamentals * Choosing a Valuation Approach * Comparable Companies and Transactions * Comparable Transactions Analysis * DCF Analysis * Forecasting Free Cash Flow * Calculating the Discount Rate * Ascribing a Terminal Value * Conducting Sensitivity
Analyses * The IVS Framework * Concluding Comments * Exhibit 3-1: Valuation Approaches * Exhibit 3-2: Advantages and Disadvantages of Valuation Multiples * Exhibit 3-3: Common Multiples Used in Selected Sectors * Exhibit 3-4: Comparable Companies Checklist * Exhibit 3-5: Variations in Accounting May Affect Valuation Multiples * Exhibit 3-6: Comparable Transactions Checklist * Exhibit 3-7: Summary of Precedent Transactions * Exhibit 3-8: Overview of the DCF Analysis Process * Exhibit 3-9: Advantages of DCF Analysis * Exhibit 3-10: Disadvanatges of DCF Analysis * Exhibit 3-11: Defining Free Cash Flow-Top-down Approach * Exhibit 3-12: Calculating Free Cash Flow-Example of Top-down Approach * Exhibit 3-13: Defining Free Cash Flow-Bottom-up Approach * Exhibit 3-14: Calculating Free Cash Flow-Example of Bottom-up Approach * Exhibit 3-15: Present Value Formula * Exhibit 3-16: WACC Formula * Exhibit 3-17: Cost of Common Equity Formula * Exhibit 3-18: Chart Showing Size Premiums by Quartile and Decile * Exhibit 3-19: Chart Showing Size Premiums by Decile * Exhibit 3-20: Exit Multiple Approach to Estimating Terminal Value * Exhibit 3-21: Terminal Value Model Assuming Constant Growth * Exhibit 3-22: Perpetuity Value Assuming No Growth in Cash Flows * Exhibit 3-23: Perpetuity Value Assuming 2 Percent Growth * Exhibit 3-24: DCF for a Business Already in Constant Growth Mode * Exhibit 3-25: DCF for a No. 2 Pencil Manufacturer * Notes
Chapter 4 Financing and Refinancing
Introduction * Financing Overview * Financing Instruments: Equity vs. Debt vs. Hybrids * Financing Sources * Highly Leveraged Transactions * Minimizing Borrowing * Determining Structure in Debt Financing * Senior Debt * Sale-Leasebacks * Pros and Cons of Preserving Debt and Lease Obligations * Seller Takeback Financing * Warrants * Working Capital Debt of the Seller * The Bank Book and Commitment Letter * Other Principal Issues in Senior Loan Agreements * High-Yield (a.k.a. Junk) Bonds * Bridge Loans * Equity Investment Funds * Registration Rights * Intercreditor Issues * Subordination Issues * Intercreditor Agreements * Fraudulent Conveyance and Other Litigation Concerns * Refinancing Issues * Concluding Comments * Exhibit 4-1: The LBO of Beatrice and Its Aftermath * Exhibit 4-2: Sample Company's Cash Flow and Debt Service Requirements * Exhibit 4-3: Sample Covenant * Exhibit 4-4: Subordination and Corporate Structure * Appendix 4A: Typical Subordination Provisions of Publicly Issued Notes * Appendix 4B: Typical Subordination Provisions of Privately Placed Institutional Notes * Appendix 4C: Typical Subordination Provisions of Seller Notes * Notes
Chapter 5 Structuring Transactions: General, Tax, and Accounting Considerations
Introduction * General Considerations * Structuring Asset Transactions * Structuring Stock Transactions * Structuring Merger Transactions * General Accounting Considerations * Allocating the Price of a Transaction for Accounting Purposes * Difference Between Accounting and Tax Treatments * Tax Considerations * Basic Tax Concepts and Definitions * Basic Tax Structure: Taxable Transactions * Basic Tax Structure: Tax-Deferred Transactions * Choice of Entity * Tax Consequences in Structuring Acquisition
Debt Financing * Management Buyout Tax Basics * Postacquisition Tax Issues * Other Tax Issues * Concluding Comments * Transaction Diagrams * Exhibit 5-1: A Guide to US (Federal) and State Codes * Exhibit 5-2: Forward Subsidiary Merger (FSM) vs. Reverse Subsidiary Merger (RSM) * Exhibit 5-3: Anatomy of a Merger, Acquisition, and Buyout Transaction * Exhibit 5-4: Description of Acquisition Allocation from Emcor Group, Inc. * Exhibit 5-5: Differences in the Purchase Price Computation * Exhibit 5-6: Section 368: Types of Reorganization * Exhibit 5-7: Stock Purchase * Exhibit 5-8: Asset Purchase * Exhibit 5-9: Taxable Forward Merger * Exhibit 5-10: Taxable Reverse Merger * Exhibit 5-11: Taxable Forward Subsidiary Merger * Exhibit 5-12: Tax-Free Forward Merger (A Reorganization) * Exhibit 5-13: Tax-Free Forward Triangular Merger * Exhibit 5-14: Tax-Free Acquisition of Stock for Voting Stock (B Reorganization) * Exhibit 5-15: Acquisition of Property for Voting Stock (C Reorganization) * Exhibit 5-16: Acquisition of Property for Voting Stock (D Reorganization) * Exhibit 5-17: National Starch Transaction (Section 351 Acquisition) * Appendix 5A: Meeting the Reorganization Test: US Examples from the Internal Revenue Service * Notes
Chapter 6 The Due Diligence Inquiry
Introduction * Getting Started * Duration of Due Diligence * Due Diligence Levels * Securities Laws and Due Diligence * Red Flags * Relations with the Seller * Location of Due Diligence Research * Evaluating Assets * Litigation Analysis * Emerging Legal Issues * Due Diligence After Closing * Concluding Comments * Exhibit 6-1: VDR Menu Screen Shot * Exhibit 6-2: A Representative List of Virtual Data Room Providers * Exhibit 6-3: Some Typical Plaintiff Claims in M&A Litigation * Exhibit 6-4: Venn Diagram Showing Interrelationship of M&A, Due Diligence Standards, and Securities Law * Appendix 6A: Sample Confidentiality Agreement * Appendix 6B: Due Diligence Checklist * Appendix 6C: An Annotated Initial Document and Information Request List * Appendix 6D: Sample Index of VDR Documents * Notes
Chapter 7 Negotiating the Letter of Intent and Acquisition Agreement
Introduction * Letter of Intent * The Acquisition Agreement * Components of the Agreement * Introductory Material * Representations and Warranties * Covenants * Conditions to Closing * Indemnity Section * Acquisitions from an Affiliated Group * Transactions Involving Public Companies * Negotiating and Documenting an MBO * Employment Agreements * Stockholders' Agreements * Concluding Comments * Exhibit 7-1: Seller vs. Buyer Key Goals * Exhibit 7-2: The Safeguards-Price Negotiating Matrix * Exhibit 7-3: The FASB on Materiality * Appendix 7A: Sample Letter of Intent * Appendix 7B:Typical Merger Agreement and Commentary * Notes
Chapter 8 Closing
Introduction * The Basics of Closing * Planning the Closing * Preclosing * Closing * Wire Transfers * Postclosing * Concluding
Comments * Appendix 8A: Sample Closing Memorandum (Including a Detailed Schedule of Closing Documents) * Notes
Chapter 9 Postmerger Integration and Divestitures
Introduction * Basic Concepts of Integration * The Postmerger Plan * Communicating the Integration Plan * Combining Company Names * Integrating Cultures * Integrating Mission, Policy, Ethics, and Vision Statements * Integrating Key Resources, Processes, and Responsibilities * Integrating Resources * Integrating Processes * Integrating Responsibilities * Commitments to Employees * Postmerger Compensation: A Complex Issue * Planning Pay Integration: A Strategic Overview * Merging Benefits Plans * Some General Postmerger Technology Considerations * Divestitures * Concluding Comments * Exhibit 9-1: Audience Media Communications Matrix * Exhibit 9-2: Steps for Naming a Newly Combined Company * Exhibit 9-3: A Matrix for Planning Cultural Integration * Exhibit 9-4: Acquisition Integration Plan for Human Resources Operation * Exhibit 9-5: Three Brand Approaches * Exhibit 9-6: Sample Plan for 30-, 60-, and 90+-Day Milestones * Exhibit 9-7: Old Line Bank and Bay Bank Merger FAQ (Excerpts) * Exhibit 9-8: Marathon Patent Press Release Addressing the Dilution Issue * Exhibit 9-9: Sample Matrix for Postmerger Compensation Planning * Exhibit 9-10: Valuing the Divestiture Option * Exhibit 9-11: The WARN Act: Basic Provisions/Requirements * Appendix 9A: Sample Postmerger Press Release Highlighting Strategic Motivation * Appendix 9B: Sample Assets Checklist of Resources, Processes, and Responsibilities * Appendix 9C: Integration Planning Worksheet * Appendix 9D: Integration Timeline from a Midsized Acquirer * Appendix 9E: Pairwise Comparison * Appendix 9F: Principles for Responsible Busin ess * Exhibit 9E-1: Setting Up the Pairwise Comparison Matrix * Exhibit 9E-2: Identifying the Useful Part of the Matrix * Exhibit 9E-3: Filling the Useful Part of the Matrix * Notes
Chapter 10 Special Issues for M&A in Public Companies
Introduction * General Considerations * Proxy Voting * Dodd-Frank, Sarbanes-Oxley, and M&A * Duties of Care and Loyalty * Director Responsibilities in Responding to Unsolicited Bids * M&A Forms * Tender Offer Basics * Proxy Solicitations * Going Private * Merger Disclosure Issues * Insider Trading * Financing the Two-Step Public Transaction with Debt * Takeover Defenses * State Laws Related to Takeover Defense * Concluding Comments * Exhibit 10-1: Some Typical Plaintiff Claims in M&A Litigation * Exhibit 10-2: Federal Class Actions on M&A 2010-2018 * Exhibit 10-3: Likely Responses to Tender Offers Versus Management Promises * Notes
Chapter 11 Workouts, Bankruptcies, and Liquidations
Introduction * General Considerations * Workouts * Bankruptcy * State Insolvency Proceedings * Investing Opportunities: Structuring the Purchase of a Troubled Company * Structuring a Buyout to Minimize Insolvency
Risk * Financing Alternatives for Companies with Losses * Accounting/Tax Issues for Companies with Losses * Liquidation * Concluding Comments * Diagrams Showing Various Structures for Reorganizations and Workouts of Insolvent Companies * Exhibit 11-1: Definitions of Bankruptcy * Exhibit 11-2: Average Corporate Debt Recovery Rates Measured by Ultimate Recoveries, 1987-2018 * Exhibit 11-3: Business vs. Computer Bankruptcies * Exhibit 11-4: Some Common Consolidation Scenarios Applying ASC 810 * Exhibit 11-5: The 10 Largest Bankruptcies in the United States (by Total Assets Pre-Bankruptcy) * Exhibit 11-6: Structure Posing No Fraudulent Conveyance Risk * Exhibit 11-7: Structure Posing Fraudulent Conveyance Risk via Guarantee * Exhibit 11-8: Structure Posing Fraudulent Conveyance Risk via Transfer of Loan Recipient * Exhibit 11-9: Structure Posing Fraudulent Conveyance Risk via Simple Merger * Exhibit 11-10: Structure Posing Fraudulent Conveyance Risk via Distribution to Target Shareholder * Exhibit 11-11: Structure Posing Risk of Fraudulent Conveyance in Multistep Transaction Involving Small Stock Purchase and Large Loan * Exhibit 11-12: Structure Posing Fraudulent Conveyance Risk via Transfer of Risk to a Subsidiary * Notes
Chapter 12 Global Deals: Structuring for Success
Introduction * Nontax Inbound: Issues Regarding Foreign Investment in the United States * Nontax Outbound: Acquisitions Involving Assets Located Outside the United States * Foreign Exchange * Other Global Realities * Financing Outbound Transactions * International Tax and Disclosure Considerations * Tax Considerations in Inbound Acquisitions * Tax Considerations in Outbound Acquisitions * Concluding Comments * Exhibit 12-1: Examples of Eurocurrencies * Appendix 12-1:Meeting the Reorganization Test: Foreign Examples from the Internal Revenue Service * Notes
Landmark and Recent M&A Legal Cases
Cases Alleging Impropriety in Purchasing (or Disclosing an Offer to Purchase) a Company or Controlling Shares * Cases Alleging Impropriety in the Valuation and/or Sale of a Business, Assets, or Controlling Shares * Cases Involving M&A Agreements or Other Contracts * Cases Alleging Violation of Antitrust Laws * Cases Alleging Violations of Health, Safety, and Labor Laws in an M&A Context * Cases Dealing with Jurisdiction or Right to Sue Following a Merger * Additional Cases
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