Archives: Mergers & Acquisitions

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New HSR Thresholds Announced for 2017

The Federal Trade Commission has announced revised threshold amounts that require HSR (Hart-Scott-Rodino Antitrust Improvements Act) filings for non-exempt transactions. The new thresholds take effect on Feb. 27. HSR filings will be required where:

  • The size of the transaction exceeds $80.8 million (measured by the aggregate value of assets, voting securities and non-corporate interests being acquired); and
  • The size of one of the parties to the transactions has sales or assets over $323 million and the other party has sales
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Avoiding Fraud Claims with Disclaimers of Reliance

One of the critical considerations private equity funds have in selling their portfolio companies is the limitation of their liability for indemnity obligations after the closing. Great care is taken to negotiate limitations on liability, often in the form of temporal limitations, hurdles and caps and limitations on the types of losses recoverable.

A customary exception to these limitations exists for fraud perpetrated by the private equity fund in the sale. When fraud is implicated, most purchase agreements allow an … Read More

Earn-Outs in Private Equity M&A Deals – Tax and Accounting Implications

As discussed in Part 1 and Part 2 of this post, earn-outs can provide various advantages to buyers and sellers depending on the way they are structured. The parties and their counsel should understand the tax and accounting implications.

Tax treatment: Often, the seller will want to ensure that it receives installment sale treatment with respect to earn-out payments to prevent recognizing taxable gain on amounts not received. Sellers should consider in particular whether the taxable gain associated with earn-out … Read More

Structuring the Earn-Out – Maximizing the Benefits in Private Equity M&A Deals

As discussed in Part 1 of this post, there are various advantages and disadvantages to buyers and sellers choosing to use earn-outs in private equity M&A transactions. These features can be enhanced or minimized depending on how the earn-out is structured. The main components of a well-structured earn-out are appropriate financial milestones, length of the earn-out period, obligations during the earn-out period, calculation of the earn-out payment and payment terms. Tax and accounting implications of earn-out payments will be discussed … Read More

Advantages and Disadvantages of Earn-Outs in Private Equity M&A Deals

Earn-outs are a tool used in M&A transactions to bridge gaps between the buyer’s valuation of the target company and the seller’s belief as to what its company is worth.

Earn-outs are particularly valuable when

  1. the target has growth potential but limited operating results on which to base the purchase price,
  2. the target has had a decrease in earnings that may be temporary, or
  3. the seller believes the target will grow beyond its historical operating results and is worth more
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Working Capital Considerations – Dispute Resolution and Indemnity Implications

As discussed in Part 1 of this post, working capital methodology and adjustment mechanisms are often heavily negotiated in private transactions in the core middle market. However, it is just as important that the parties anticipate how to handle disputes over the calculation of closing date working capital.

The customary methodology for resolving working capital disputes is as follows:

  1. the seller has an opportunity (generally 30 days) to review the buyer’s calculation and notify the buyer if it objects,
  2. if
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Calculating Working Capital Adjustments in Private Equity M&A Deals

Private equity funds typically price their investments based on an enterprise valuation of the target (most often using a multiple of the target’s EBITDA). The enterprise value established for the target generally assumes that at closing the target will have a normalized amount of net working capital. If it turns out that the target has less than its normal amount of net working capital at closing, the agreed-upon enterprise value for the target would be too high. If, however, the … Read More