U.S. M&A activity slowed sharply in the second quarter due to the economic shock resulting from the COVID-19 pandemic. Activity – especially involving lower-to-middle market businesses – is expected to remain muted for the duration of 2020 and throughout 2021 unless more effective therapeutics and/or vaccines are developed that facilitate a more bullish sentiment than currently prevails.
It has been 34 years since the Delaware Supreme Court ruled in the landmark case Smith v. Van Gorkom, (Trans Union), (488 A. 2d Del. 1985) and thereby made the issuance of fairness opinions de rigueur in M&A and other significant corporate transactions. The backstory of Trans Union is the board approved an LBO that was engineered by the CEO without hiring a financial advisor to vet a transaction that was presented to them without any supporting materials.
Fairness opinions are now issued for virtually all public companies and many private companies and banks with minority shareholders that are considering a take-over, material acquisition, or other significant transaction.
In this video, Travis W. Harms, CFA, CPA/ABV, senior vice president of Mercer Capital, offers a short, yet thorough, overview of corporate finance fundamentals for closely held and family business directors and shareholders.
An engaged and informed shareholder base is essential for the long-term health and success of any private company, and a periodic shareholder survey is a great tool for achieving that result.
Between the two bookends of status quo and an eventual third-party sale are many possibilities for creating shareholder liquidity and diversification and facilitating both ownership and management transitions.
Wall Street generally does not like MOEs unless the benefits are utterly obvious and/ or one or both parties had no other path to create shareholder value. In some instances, MOEs may be an intermediate step to a larger transaction that unlocks value.
A number of tax traps become apparent during the due diligence process for those professionals who knows how to look for these issues. This article seeks to identify a few that commonly show up during the process of acquiring the equity of a company.
On May 23, Ares Capital (ARCC) announced the acquisition of fellow business development company, or BDC, American Capital (ACAS) in a cash and stock deal valued at $4.0 billion. The deal is notable from several perspectives. First, the transaction brings closure to the ACAS saga. Second, the deal includes third-party support from ARCC’s management company. Finally, the transaction structure allowed ARCC to raise nearly $2.0 billion in new equity without diluting NAV per share, despite ARCC shares trading at an 8% discount to NAV prior to the announcement.
August has become the new October for markets in terms of increased volatility and downward pressure on equities and high yield credit. This year has seen similar volatility as was the case in some memorable years. Declining commodity markets, exchange rate volatility and a pronounced widening of credit spreads finally began to reverberate in global equity markets this year. Declining markets in the context of negotiating and opining on a transaction will raise the question: How do current market conditions impact fairness?
In this article, we discuss the importance of fairness opinions when the primary form of consideration consists of the buyer’s shares.
The fairness opinion states that a transaction is fair from a financial point of view of the subject company’s shareholders. The opinion does not express a view about where a security may trade in the future; nor does it offer a view as to why a board elected to take a certain action. Valuation is at the heart of a fairness opinion, though valuation typically is a range concept that may (or may not) encompass the contemplated transaction value.
Dividend recaps can be an attractive transaction for a board to undertake to unlock value, especially since multiples for many industries have recovered to pre-crisis levels while borrowing rates are very low and most banks are anxious to lend. In addition, dividend recaps allow privately held businesses to convert “paper” wealth to liquid wealth and thereby facilitate diversification.
In this article, we provide a broad overview of business value and why understanding basic valuation concepts is critical for business owners. Why is this valuation knowledge important? Because businesses change hands much more frequently than one might think. In fact, every business changes hands at least every generation, even if control is maintained by a single family unit.
A fairness opinion is provided by an independent financial advisor to the board of directors of selling companies in many transactions today, especially those with a significant number of minority shareholders.
When talking with business owners about transacting their business, an issue that almost always arises relates to the appropriate deal and financial expertise of the transaction advisor.
Companies often use contingent consideration when structuring M&A transactions to bridge differing perceptions of value between a buyer and seller, to share risk related to uncertainty of future events, to create an incentive for sellers who will remain active in the business post-acquisition, and other reasons.
We are living in an uncertain world. Business owners must carefully consider the current uncertainties in order to position their companies (and themselves) optimally for the future.
On October 11, 2007 the SEC approved FINRA’s new Rule 2290 regarding the preparation of fairness opinions and the disclosures required in fairness opinions.
It is common for business owners to get serious about exit strategies only after a potential buyer comes knocking on the door.
An initial private offering (IPO) is an offering of private company stock to the investing public through the regulated, public securities markets. For rmany reasons, the IPO route to shareholder liquidity or growth capital is unavailable to most private companies.
It is important for business owners to understand the factors that influence value in both the general economy and the acquisition market. This is certainly necessary for owners who are currently considering the sale of their business or may consider such a transaction in the near future.
As part of our transaction advisory and consulting services, Mercer Capital is often called upon to provide fairness opinions in transactions.
While this article highlights our experience in the banking industry, the strategies presented here are applicable for anyone in any industry engaging in a transaction.
Many business owners have not done a great deal of thinking about the value of their businesses. When we talk to these business owners about potential transactions, they often have no (or an unrealistic) notion of the economic benefits associated with their ownership interest in the business.