Posts Tagged ‘Financing conditions’

Value Protection in Stock and Mixed Consideration Deals

Posted by Daniel E. Wolf, Kirkland & Ellis LLP, on Wednesday June 18, 2014 at 9:02 am
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Editor’s Note: Daniel Wolf is a partner at Kirkland & Ellis focusing on mergers and acquisitions. The following post is based on a Kirkland memorandum by Mr. Wolf, David B. Feirstein, and Joshua M. Zachariah.

As confidence in M&A activity seems to have turned a corner, the use of acquirer stock as acquisition currency is a serious consideration for executives and advisers on both sides of the table. A number of factors play into the renewed appeal of stock deals, including an increasingly bullish outlook in the C-level suite and higher and more stable stock market valuations, as well as deal-specific drivers like the need for a meaningful stock component in tax inversion transactions (see recent post on this Forum).

…continue reading: Value Protection in Stock and Mixed Consideration Deals

Acquisition Financing 2014: the Year Behind and the Year Ahead

Posted by Kobi Kastiel, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday February 4, 2014 at 9:12 am
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Editor’s Note: The following post comes to us from Eric M. Rosof, partner focusing on financing for corporate transactions at Wachtell, Lipton, Rosen & Katz, and is based on a Wachtell Lipton memorandum by Mr. Rosof, Joshua A. Feltman, and Gregory E. Pessin.

Following a robust 2012, the financing markets in 2013 continued their hot streak. Syndicated loan issuances topped $2.1 trillion, a new record in the United States. However, as in 2012, financing transactions in the early part of 2013 were devoted mostly to refinancings and debt maturity extensions rather than acquisitions. In fact, new money debt issuances were at record lows during the first half of 2013. The second half of 2013, though, saw an increase in M&A activity generally, and acquisition financing in the fourth quarter and early 2014 increased as a result.

…continue reading: Acquisition Financing 2014: the Year Behind and the Year Ahead

Private Company Financing Trends for 1H 2013

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Thursday August 22, 2013 at 8:57 am
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Editor’s Note: The following post comes to us from Craig Sherman, partner focusing on corporate and securities law at Wilson Sonsini Goodrich & Rosati, and first appeared in the firm’s Entrepreneurs Report.

In Q2 2013, up rounds (including several second-stage seed financings) as a percentage of total deals increased modestly compared with Q1 2013. While pre-money valuations remained strong for both venture-led and angel Series A deals that had closings in Q2, valuations of companies doing Series B and later rounds declined significantly. Median amounts raised increased modestly for angel-backed Series A deals but fell for venture-backed companies, while amounts raised increased for Series B deals, but fell for Series C and later rounds.

Deal terms remained broadly similar in 1H 2013 as compared with 2012, with a couple of notable exceptions. First, the use of uncapped participation rights in both up and down rounds continued to decline. Second, down rounds also saw a shift away from the use of senior liquidation preferences.

Up and Down Rounds

Up rounds represented 67% of all new financings in Q2 2013, an increase from 60% in Q1 2013 but still down markedly from the 76% figure for up rounds in Q4 2012. Similarly, down rounds as a percentage of total deals declined from 26% in Q1 2013 to 18% in Q2 2013, but were still higher than the 14% figure for Q4 2012. The percentage of flat rounds grew slightly, from 14% of all deals in Q1 2013 to 15% in Q2 2013.

…continue reading: Private Company Financing Trends for 1H 2013

Equator Principles III Enters Into Force This June

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday June 18, 2013 at 9:13 am
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Editor’s Note: The following post comes to us from Jason Y. Pratt, member of the Real Estate Practice Group at Shearman & Sterling LLP. This post is on a Shearman & Sterling client publication by Mr. Pratt and Mehran Massih.

In the last 10 years, the Equator Principles or EPs have emerged as the industry standard for financial institutions to assess social and environmental risk in the project finance market. The EPs – which are based on the International Finance Corporation or IFC’s performance standards on social and environmental sustainability and the World Bank’s environmental, health and safety guidelines – have significantly increased attention on social/community responsibility, including as related to indigenous peoples, labour standards, and consultation with locally affected communities. They have also promoted convergence in the market: at present, 79 financial institutions in 32 countries have officially adopted the EPs, reportedly covering over 70% of international project finance debt in emerging markets.

This month saw the approval of the third version of the EPs, or EP III, completing a consultation process that was launched in July 2011. EP III will be effective from 4 June 2013 and financial institutions that are signatories to the EP, called EPFIs, will need to apply EP III to all new transactions by 1 January 2014.

…continue reading: Equator Principles III Enters Into Force This June

Got Financing? You May Have to Extend Your Tender Offer

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Tuesday April 23, 2013 at 9:17 am
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Editor’s Note: The following post comes to us from David A. Brittenham, corporate partner and the chair of the Finance Group at Debevoise & Plimpton LLP, and Alan H. Paley, corporate partner and co-chair of the Securities Group at Debevoise & Plimpton LLP. The post is based on a Debevoise & Plimpton client update by Mr. Brittenham, Mr. Paley, Andrew L. Bab, and Matthew E. Kaplan.

Recent news coverage has suggested that the Staff of the U.S. Securities and Exchange Commission (the “SEC”) has taken a position interpreting its tender offer rules that represents a significant new development. In actuality, however, the Staff has for some time taken the position that the satisfaction of a financing condition in a tender offer for an equity security subject to Regulation 14D constitutes a material change to the tender offer requiring that it remain open for at least five business days following this change. Though nothing new, the Staff’s recent reiteration of this position serves as a reminder to bidders who are financing their offers that they may be required to extend the tender offer period and that their financing papers and merger agreement should be drafted to take this into account.

…continue reading: Got Financing? You May Have to Extend Your Tender Offer

Acquisition Financing: The Year Behind and the Year Ahead

Posted by Noam Noked, co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Saturday February 16, 2013 at 7:46 am
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Editor’s Note: The following post comes to us from Eric M. Rosof, partner focusing on financing for corporate transactions at Wachtell, Lipton, Rosen & Katz, and is based on a Wachtell Lipton memorandum by Mr. Rosof, Joshua A. Feltman, Gregory E. Pessin, Michael S. Benn and Austin T. Witt.

Just like 2007… and not much like it at all.

So it was in the financing markets in 2012. Capital flowed to non-investment grade issuers in amounts reminiscent of the earlier time. However, those issuers mainly seized upon rising debt investor confidence in order to consummate refinancings, repricings and dividend recapitalizations, while the banks that arrange leveraged loan and high yield bond deals remained cautious in providing committed financing for acquisitions. Meanwhile, acquisitions, spinoffs and other transactions by investment grade issuers received strong support from arrangers and investors alike, with significant availability of committed financing for complex deals and favorable execution of debt issuances to close transactions. If the first few weeks are a guide, and barring any significant disruption in the interest rate environment, 2013 promises more of the same, but whether committed financing for high yield deals will continue its slow recovery remains to be seen.

…continue reading: Acquisition Financing: The Year Behind and the Year Ahead

Financing-Motivated Acquisitions

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday April 27, 2012 at 9:10 am
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Editor’s Note: The following post comes to us from Isil Erel, Yee Jin Jang, and Michael Weisbach, all of the Department of Finance at The Ohio State University.

In the paper, Financing-Motivated Acquisitions, which was recently made publicly available on SSRN, we evaluate the extent to which acquisitions lower financial constraints on a sample of 5,187 European acquisitions occurring between 2001 and 2008. Each of these targets remains a subsidiary of its new parent, so we can observe the target’s financial policies following the acquisition. We examine whether these post-acquisition financial policies reflect improved access to capital.

Managers often justify acquisitions with the logic that they can add value to targets by facilitating the target’s ability to invest efficiently. In addition to the operational synergies emphasized by the academic literature, financial synergies potentially come from the ability to use the acquirer’s assets to help finance the target’s investments more efficiently. However, examining this view empirically is difficult, since for most acquisitions, one cannot observe data on target firms on subsequent to being acquired. Because of disclosure requirements in European countries, we are able to construct a sample of European acquisitions containing financial data on target firms both before and after the acquisitions. We use this sample to test the hypothesis that financial synergies are one factor that motivates acquisitions.

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Investment Cycles and Startup Innovation

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday November 28, 2011 at 9:49 am
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Editor’s Note: The following post comes to us from Ramana Nanda and Matthew Rhodes-Kropf, both of the Entrepreneurial Management Unit at Harvard Business School.

In our paper, Investment Cycles and Startup Innovation, which was recently made publicly available on SSRN, we examine how the environment in which a new venture was first funded relates to their ultimate outcome. New firms that surround the creation and commercialization of new technologies have the potential to have profound effects on the economy. The creation of these new firms and their funding is highly cyclical (Gompers et al. (2008)). Conventional wisdom associates the top of these cycles with negative attributes. In this view, an excess supply of capital is associated with money chasing deals, a lower discipline of external finance, and a belief that this leads to worse ventures receiving funding in hot markets.

However, the evidence in our paper suggests another, possibly simultaneous, phenomenon. We find that firms that are funded in “hot” times are more likely to fail but create more value if they succeed. This pattern could arise if in “hot” times more novel firms are funded. Our results provide a new but intuitive way to think about the differences in project choice across the cycle. Since the financial results we present cannot distinguish between more innovative versus simply riskier investments, we also present direct evidence on the quantity and quality of patents produced by firms funded at different times in the cycle. Our results suggest that firms funded at the top of the market produce more patents and receive more citations than firms funded in less heady times. This indicates that a more innovative firm is funded during “hot” markets.

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Deviation from the Target Capital Structure and Acquisition Choices

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Monday October 31, 2011 at 9:34 am
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Editor’s Note: The following post comes to us from Vahap Uysal of the Department of Finance at the University of Oklahoma.

In the paper, Deviation from the Target Capital Structure and Acquisition Choices, forthcoming in the Journal of Financial Economics, I explore the effects of a firm’s leverage deficit on its acquisition choices. In particular, I examine the extent to which a firm’s leverage deficit affects the likelihood of the firm making an acquisition as well as the effect of its leverage deficit on the payment method and on the premiums paid for the target firm. Because managers are likely to anticipate the constraints of overleverage on acquisition choices, I also analyze managerial decisions on capital structure in the light of potential acquisitions. Specifically, I test whether managers of overleveraged firms reduce their leverage deficits when they foresee a high likelihood of making acquisitions. Finally, I examine how capital markets react to the acquisition announcements of firms that deviate from their capital structures. Managers of overleveraged firms will face constraints on the form and level of financing and are more likely to be selective in their acquisition choices if they fail to decrease their leverage deficits substantially. Therefore, I hypothesize that managers of overleveraged firms will pursue only the most value-enhancing acquisitions, which, in turn, will foster favorable market reactions to the news of their acquisitions.

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Do VCs Use Inside Rounds to Dilute Founders?

Posted by R. Christopher Small, Co-editor, HLS Forum on Corporate Governance and Financial Regulation, on Friday July 8, 2011 at 9:22 am
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Editor’s Note: The following post comes to us from Brian Broughman of the Maurer School of Law at Indiana University, Bloomington, and Jesse Fried, Professor of Law at Harvard Law School.

In our paper, Do VCs Use Inside Rounds to Dilute Founders? Some Evidence from Silicon Valley, recently made publicly available on SSRN, Brian Broughman and I examine the role of inside financing rounds in VC-backed firms.

VCs typically invest through several rounds of financing. Each round is separately negotiated and priced. A subsequent (“follow-on”) round of financing could be provided by either (a) the firm’s existing VC investors exclusively (an inside round) or (b) a group led by a VC fund that did not invest in the startup’s earlier rounds (an outside round). Historically, most follow-on financings were structured as outside rounds, in part to mitigate conflict between the entrepreneur and existing VCs over the value of the firm. In recent years, however, more than half of follow-on rounds have been structured as inside rounds.

…continue reading: Do VCs Use Inside Rounds to Dilute Founders?

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