Read the latest edition of our M&A Today Newsletter.
Often, executives of private companies have certain rights and benefits that are triggered upon a change in control, such as accelerated vesting of equity awards and payments under a management carve-out plan. These payments may result in significant tax penalties under Section 280G of the Internal Revenue Code, or the “Golden Parachute Rules”, unless appropriate action is taken by the company.
Read the article in this month’s M&A Today Newsletter to learn more about Section 280G.
Selling a business can be a once-in-a-lifetime opportunity to reap the rewards for years of efforts spent successfully growing a company, but it is critically important that the business is positioned to achieve a successful exit and there are a number of initial steps to be taken to prepare for a successful exit.
Learn more in this month’s M&A Today Newsletter.
Selling a company can be a long and winding road with an inevitable exchange of confidential information between presumptive buyers and the selling company occurring throughout the course of a M&A transaction. Typically, the first document signed between a buyer and seller is a non-disclosure agreement (a “NDA”) which is designed to place restrictions on what each party may do with confidential information shared by the other party during the course of the buyer’s due diligence review of the seller.
For more information on NDAs, read the full article in our M&A Today Newsletter.
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The MBBP M&A team has extensive experience guiding clients through the complexities of M&A transactions in diverse markets. Over the last decade, we have represented hundreds of publicly-traded and privately-held companies in transactions, both buyers and sellers, valued from several million dollars up to hundreds of millions of dollars.
In 2016, MBBP completed a variety of M&A transactions in diverse fields such as the manufacture of window coverings and the delivery of real world Radio Frequency performance test solutions, and encompassing industries as varied as the streaming of panoramic and 360-degree video and the distribution of building products.
Read more about our 2016 M&A deals. Cheers to a successful year for our clients!
Back by popular demand, corporate partner Mary Beth Kerrigan was a panelist at an encore panel of this year’s ABA Business Law Annual Meeting in Boston. Mary Beth discussed complex issues that arise in acquisitions of venture-backed companies.
The webinar included varying topics, including disproportionate allocation of indemnity risk among stockholders/stakeholders, complex waterfalls, and much more. Congratulations to Mary Beth on another job well done!
To learn more about the conference, visit the ABA’s event page.
In an article published in ALM’s Corporate Counsel, corporate partner Shannon Zollo commented on Facebook’s M&A due diligence ahead of its approximately $2 billion acquisition of virtual reality developer Oculus VR. Video game creator ZeniMax Media Inc. sued Oculus, and Facebook once it purchased Oculus, on several allegations, including copyright infringement. In the trial, Facebook’s CEO Mark Zuckerberg was questioned about whether the one weekend his company was given to perform due diligence was enough time.
Shannon notes that “as a general rule, due diligence under normal conditions can take at least a few weeks, if not a few months”, and that proper due diligence could be difficult to conduct under such a short time frame, especially when intellectual property is a key component of the deal. Jury deliberations have begun in the trial.
For further detail on the case and on Shannon’s comments on due diligence, read the full article.
On January 19, 2017, the Federal Trade Commission (FTC) issued its annual press release announcing revised jurisdictional thresholds for 2017 in connection with reportable transactions under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act). These new HSR thresholds will go into effect 30 days after they are published in the Federal Register, which is expected to happen in late February. The thresholds apply to transactions that satisfy the “size of transaction” test (transaction value) and the “size of person” test (either in terms of annual sales or total assets). The thresholds are adjusted annually to reflect changes to the domestic gross national product. The following chart reflects the increased thresholds from 2016 to 2017:
|Test||2016 Threshold||2017 Increased
|Size of Transaction||$78.2 million||$80.8 million|
|Size of Person (smaller)||$15.6 million||$16.2 million|
|Size of Person (larger)||$156.3 million||$161.5 million|
|Size of Transaction (Size of Person Inapplicable)||$312.6 million||$323.0 million|
Adjustments to the filing fees to be paid in connection with the transactions will be as follows:
- $45,000 for transactions valued between $80.8 million but below $161.5 million.
- $125,000 for transactions valued between $161.5 million but below $807.5 million.
- $280,000 for transactions valued at or above $807.5 million.
Read the full text of the FTC Press Release.
Adjustments to civil penalty amounts for certain laws enforced by the FTC, including HSR, were also announced. These new adjustments provide that any noncompliance with any requirements under HSR may subject any person, or any officer, director or partner of such person, to civil penalties of up to $40,654 for each day of violation. This penalty was increased last August from $16,000 to $40,000 per day and will now be subject to annual adjustment to reflect changes to the domestic gross national product
All parties should carefully consider the implications of the HSR Act on all transactions and should consult with counsel to determine whether an HSR filing is required.
For more information please contact Jonathan M. Calla.
Ruling that the value of certain supplemental transaction disclosures in the context of a $15 billion merger was “nil,” the Seventh Circuit Court of Appeals recently overturned an award of attorneys’ fees to plaintiffs’ counsel in the context of merger litigation. On August 10, 2016, in the case In Re: Walgreen Co. Stockholder Litigation, case number 15-3799, writing for the 7th Circuit, Judge Posner, following a recent trend of decisions denying requests for attorneys’ fees to attorneys representing shareholders challenging a merger, adopted Delaware’s Trulia standard for approval of such settlements.
The case In re Trulia, Inc. Stockholder Litigation, 129 A.3d 884 (Del. Ch. 2016) decided by the Delaware Chancery Court held in part that “[t]o be more specific, practitioners should expect that disclosure settlements are likely to be met with continued disfavor in the future unless the supplemental disclosures address a plainly material misrepresentation or omission….”
In Walgreen, the plaintiffs’ counsel successfully forced the defendant company to furnish supplemental disclosures regarding the proposed transaction. The Court in analyzing the supplemental disclosures in the context of the transaction and information that had been previously disclosed to the stockholders determined that the additional disclosures were largely worthless. As a result, the 7th Circuit held that the additional disclosures did not meet the clearer standard that the disclosures be “plainly material” and the Court held that the settlement award to plaintiffs’ counsel should be rejected by the lower court.
Based on the recent trend of courts to reject payment of fee only settlements in the context of merger litigation, evidence suggests that the filing of so called “strike suits” has begun to decrease.
For more information please contact Joe Marrow.
By: Mark J. Tarallo
Most negotiated acquisition agreements contain a provision that the buyer is relying only on the specific representations and warranties provided by the seller in the purchase agreement, and not any outside documentation. However, a recent case in the Delaware Chancery Court has made it clear that it is critical that this representation be properly worded in order to protect the buyer. In FdG Logistics LLC v. A&R Logistics Holdings, Inc., (C.A. No. 9706-CB, February 23, 2016) the Chancery Court let stand certain fraud claims made by the buyer because the “reliance” provision of the Merger Agreement did not include “any affirmative expression by buyer (1) of specifically what it was relying on when it decided to enter the Merger Agreement or (2) that it was not relying on any representations made outside of the Merger Agreement.” Instead, the Chancery Court ruled that the reliance provision served as merely “a disclaimer by the selling company of what it was and was not representing and warranting.”
The Merger Agreement at issue in FdG Logistics contained a reliance provision that stated:
Except as expressly set forth in this Article 5, the company makes no representation or warranty, express or implied, at law or in equity and any such other representations or warranties are hereby expressly disclaimed …. Notwithstanding anything to the contrary, (a) The company shall not be deemed to make to Buyer any representation or warranty other than as expressly made by the company in this agreement and (b) The company makes no representation or warranty to Buyer … unless also expressly included in the representations and warranties contained in this Article 5….
The Merger Agreement also contained an integration clause providing that:
“This Agreement, the Transaction Documents and the documents referred to herein and therein contain the entire agreement between the Parties and supersede any prior understandings, agreements or representations by or between the Parties, written or oral, which may have related to the subject matter hereof in any way.”
Despite the presence of these provisions, the Chancery Court found that the fraud claims of the buyer (based on extra-contractual statements made to buyer before it entered the Merger Agreement) should survive a motion to dismiss, on the grounds that the Merger Agreement did not contain an affirmative statement by buyer that the buyer was not relying on any information, materials or documents provided outside of the Merger Agreement.
The Chancery Court’s decision is consistent with its holdings in Anvil Holding Corp. (where the agreement contained similar language and the court allowed the claims to stand) and Prairie Capital III, L.P. v. Double E Holdings Corp, where the court dismissed the fraud claims based on the affirmative statements made by the buyer in the purchase agreement (which stated, in part, that “[i]n making its determination to proceed with the Transaction, the Buyer has relied on (a) the results of its own independent investigation and (b) the representations and warranties of the Double E Parties expressly and specifically set forth in this Agreement” and that “THE BUYER UNDERSTANDS, ACKNOWLEDGES, AND AGREES THAT ALL OTHER REPRESENTATIONS AND WARRANTIES OF ANY KIND OR NATURE EXPRESS OR IMPLIED . . . ARE SPECIFICALLY DISCLAIMED BY THE DOUBLE E PARTIES….”
The holding in FdG Logistics makes it clear that the Chancery Court will continue to evaluate these claims in the context of the statements made by the buyer in the purchase agreement.
For more information, please contact Mark J. Tarallo.
VERY LIMITED SEATING! Join us on Thursday, May 19, for an impressive panel presentation by experienced deal makers providing an insider’s perspective on what it takes to successfully position a venture backed company for sale and get a deal done! Our experts include Brady Bohrmann of Avalon Ventures, Ted Gillick of EMC Corporation, and Douglas Melsheimer of Bulger Partners. The panelists represent the unique perspectives of a buyer, seller, and banker and each brings years of experience in venture-backed M&A. This panel will be moderated by MBBP corporate attorney Jon Gworek.
Among the topics they will address:
- How can a company best position itself for a successful exit?
- Who are the various stakeholders in an M&A transaction and are their interests aligned?
- What key considerations do buyers apply in assessing strategic fit?
- What best practices will help ensure a smooth transaction when both parties want to get a deal done?
MBBP Attorney Carl Barnes will be a panelist in the webinar “When and Why Should a Board Require an Independent Fairness Opinion,” presented as part of the BDO KNOWLEDGE Webinar Series program. The discussion will focus on what fairness opinions are, what they are not, valuation techniques, and the role fairness opinions play in helping directors to fulfill their fiduciary duties in M&A and other transactions.
This moderated panel will be held from noon to 1:00pm, Boston time, on May 5. To register, please visit BDO’s event registration page.
Attorney Shannon Zollo will be a panelist at the upcoming Alliance of Merger & Acquisition Advisors New England Chapter meeting on Monday, May 9th from 4-7pm. The AMAA is the premiere international organization serving the needs of middle market M&A professionals worldwide through educational and transactional support. The New England Chapter serves as a more local resource for face to face connections, education, and professional opportunities.
This upcoming meeting is on the topic of “Bridging the Valuation Gap – Earn Outs”. Specifically, the panelists will discuss the use of earn outs in M&A, structural considerations, measurement methods, legal issues, tax implications, valuation and financial reporting, and potential pitfalls.
To learn more and to register, check out the AMAA New England Chapter Event page.