M&A and Private Equity Update (Presentation)

In This Presentation:

- National Tier One Law Firm for Private Equity

..I. Current Market Conditions

While the level of U.S. M&A activity has decreased substantially since the 2007 peak, the aggregate transaction value increased by almost 20% for 2010 as compared to 2009, and the number of transactions during 2009 and 2010 was virtually unchanged. Key drivers of this increase included, among other things, increased confidence in the economic outlook, an increase in the availability of debt financing, the return of financial buyers to the market, the pent-up supply of sellers, record cash on the balance sheets of strategic buyers and hundreds of billions of dollars of dry powder raised by financial buyers which has not been deployed.....

II. What's Market in Legal Trends

A. Timing

Deals continue to take longer to complete in the post-2008 deal environment, with an increased focus on due diligence. Sellers are increasingly focused on expedited sale processes....

B. Structure

In transactions involving private targets, there is an increased use of alternative financing structures, including seller notes (in low-yield environments, some sellers are less averse to high-coupon alternatives to mezzanine financing), equity rollovers and earn-outs (tax and implied covenants to maximize earn-outs are a focus)...

II. What's Market in Legal Trends

C. Evolution of Conditions to Closing and Remedies through M&A Boom, Crisis and Today

i. Generally

When financing and back-up buyers were plentiful during the M&A boom that ended in 2007, buyers and targets were confident that signed transactions would close, and less emphasis was placed on negotiating conditions to closing and remedies for transactions that failed to close. Targets were confident that buyers would close to avoid reputational risk, buyers were confident that lenders would honor financing commitments, and lenders were confident that their private equity borrowers would not hold their feet to the fire. Buyers were so competitive and confident in their lenders that they increasingly agreed to transactions with no financing contingencies, gave targets specific performance remedies and placed faith in MAC conditions. Targets were so confident that they agreed to transactions with buyers which were shell companies of private equity funds (and for which there was no recourse to the funds)....

II. What's Market in Legal Trends

D. Key Indemnity Terms

i. Generally

Indemnification terms continue to be the focus of a substantial amount of time and energy in negotiations. Not surprisingly, indemnification terms became generally more target friendly during the M&A boom and during the crisis leverage shifted somewhat to buyers. As markets have normalized, that newly-gained leverage of buyers has dissipated somewhat. The following discussion is intended to be a summary of a number of the more important indemnity features, but due to space considerations is not comprehensive....

II. What's Market in Legal Trends

E. Key Escrow Terms

The percentage of purchase price placed in escrow continues to average approximately 10%, with over 60% of escrow amounts falling in the range of 5% to 15% of the purchase price....