Corporate Dealmaker Forum, Deceber 28, 2007:
Alan Alpert, a senior partner and leader of the global and U.S. M&A transaction services practices for Deloitte, has given CD Forum a quick-hit list of trends he's seeing for the New Year. David Carney, a principal with Deloitte Consulting LLP, also contributed to the list.
With corporate cash balances at their highest levels since 1985, strategic buyers have a near term market advantage. Savvy buyers with clear strategic growth objectives should be able to capitalize on shifting market dynamics driven from the credit crunch and general economic uncertainty, including less competition from PEIs and the need to bolster balance sheets or merge in competitive segments.
Stagnating capital deployment from the war chests that PEIs have amassed in recent years doesn't mean PEIs will sit idle on the sidelines while credit markets remain tight. Funds are looking for alternate transaction scenarios outside their typical space, such as portfolio company add-ons, smaller deals, bigger equity checks, private investments in public entities (PIPEs), joint ventures and/or minority stakes. With near-term exit strategies potentially impacted by economic uncertainty, some PEIs are focusing on improving portfolio companies’ performance and reevaluating debt loads on highly leveraged companies.
The emergence of new sources of capital and currency movements has created a new playing field for cross-border investment. Outbound activity from China and Japan is on the rise; PEI expansion into central eastern Europe is providing opportunities for larger equity stakes; and the BRIC nations are becoming a larger force in the world economy and deal making—with growing inbound and outbound activity. U.S. companies and assets hold particular appeal for foreign investors wanting to diversify their investment portfolios, and the role of sovereign wealth funds can't be ignored as they emerge more frequently at the deal table and potentially look to partner with PEIs or take controlling stakes.
Interest in infrastructure has crossed the pond into to the U.S. With an ageing infrastructure and increasing number of U.S. municipalities looking to monetize public assets, the U.S. is a greenfield opportunity for infrastructure deals. Despite the potential regulatory and political hurdles inherent in these transactions, more experienced offshore investors/operators and newly raised U.S. infrastructure funds are bidding on U.S. assets and bringing alternative investment structures and vehicles to the market.
In the wake of the deal boom, companies will need to reconsider the strategies driving previous mergers and acquisitions and whether transactions will realize expected synergies. Companies need to take a candid self assessment on their deals and take a "Day 2" approach to reignite and accelerate synergies or consider alternate means to create value.
Monday, December 31, 2007
Friday, December 28, 2007
M&A Ends 2007 With a Bang
Deal Journal, WSJ.com, December 28, 2007:
Reports of the M&A market’s demise may have been greatly exaggerated.
Much has been made of the slowdown in deal making and the toll the credit crunch is taking on M&A, especially on leveraged buyouts. That perhaps has overshadowed this simple fact: The biggest deal making year in history is ending quite strongly. In fact, deal making continues to chug along at levels not often seen before.
Companies and private-equity firms struck $1.093 trillion worth of transactions in the fourth quarter, according to Dealogic. That would rank it as the second biggest quarter this year and the third largest quarter in the past 12. Even if you subtract BHP Billiton’s $149.2 billion offer for Rio Tinto, that figure stands at about $944 billion and ranks ahead of six quarters since the beginning of 2005.
December marked the third straight month to top $300 billion in deal volume, according to Dealogic.
Even the U.S., which was hardest hit by the credit crunch, began to show signs of coming to life in December. Led by sovereign wealth funds scooping up stakes in U.S. financial institutions, foreign buyers increasingly found the U.S. attractive.
U.S. deal volume hit $121 billion in the month, surpassing $100 billion for the first time since July, and down just 8.4% from December 2006, according to Dealogic. Meanwhile, acquisitions of U.S. firms by foreign buyers surged to $107.8 billion in the fourth quarter — the largest quarterly total in the past 12.
With private-equity players still on the sideline, corporate buyers are indeed filling the void. Not only did corporate deal volume reach $955 billion in the fourth quarter, its second highest level of the year (the second quarter, which marked the peak of the boom, ranks higher). It also accounted for 87% of all deal volume – its largest percentage of the past four quarters.
Reports of the M&A market’s demise may have been greatly exaggerated.
Much has been made of the slowdown in deal making and the toll the credit crunch is taking on M&A, especially on leveraged buyouts. That perhaps has overshadowed this simple fact: The biggest deal making year in history is ending quite strongly. In fact, deal making continues to chug along at levels not often seen before.
Companies and private-equity firms struck $1.093 trillion worth of transactions in the fourth quarter, according to Dealogic. That would rank it as the second biggest quarter this year and the third largest quarter in the past 12. Even if you subtract BHP Billiton’s $149.2 billion offer for Rio Tinto, that figure stands at about $944 billion and ranks ahead of six quarters since the beginning of 2005.
December marked the third straight month to top $300 billion in deal volume, according to Dealogic.
Even the U.S., which was hardest hit by the credit crunch, began to show signs of coming to life in December. Led by sovereign wealth funds scooping up stakes in U.S. financial institutions, foreign buyers increasingly found the U.S. attractive.
U.S. deal volume hit $121 billion in the month, surpassing $100 billion for the first time since July, and down just 8.4% from December 2006, according to Dealogic. Meanwhile, acquisitions of U.S. firms by foreign buyers surged to $107.8 billion in the fourth quarter — the largest quarterly total in the past 12.
With private-equity players still on the sideline, corporate buyers are indeed filling the void. Not only did corporate deal volume reach $955 billion in the fourth quarter, its second highest level of the year (the second quarter, which marked the peak of the boom, ranks higher). It also accounted for 87% of all deal volume – its largest percentage of the past four quarters.
Friday, December 21, 2007
Judge Rules Against United Rentals in Deal Lawsuit
A Delaware judge ruled Friday that Cerberus Capital Management could not be forced to complete its $4 billion deal for United Rentals, a rental equipment operator.
After a two-day trial this week, William B. Chandler III of Delaware’s Court of Chancery said that the private equity firm need only pay a $100 million breakup fee, as stipulated in the deal agreement. United Rentals had argued that Cerberus could not unilaterally break off the deal.
“URI knew or should have known what Cerberus’ understanding of the merger agreement was,'’ Judge Chandler wrote in his ruling.
In a statement, Cerberus said:
We are gratified that Chancellor Chandler has ruled in favor of the Cerberus affiliates. The decision validates the Cerberus affiliates’ specifically negotiated ability to refrain from proceeding with the proposed transaction. The decision not to proceed was reached only after a great deal of deliberation and only after exploring all available alternatives. We regret the negative comments that were directed at us by URI, and are pleased that the court chose to decide the case on the merits and confirm that Cerberus acted in accordance with its rights and obligations.
Shares in United Rentals fell 17 percent Friday afternoon, closing at $17.91.
Go to Article from Bloomberg News »
After a two-day trial this week, William B. Chandler III of Delaware’s Court of Chancery said that the private equity firm need only pay a $100 million breakup fee, as stipulated in the deal agreement. United Rentals had argued that Cerberus could not unilaterally break off the deal.
“URI knew or should have known what Cerberus’ understanding of the merger agreement was,'’ Judge Chandler wrote in his ruling.
In a statement, Cerberus said:
We are gratified that Chancellor Chandler has ruled in favor of the Cerberus affiliates. The decision validates the Cerberus affiliates’ specifically negotiated ability to refrain from proceeding with the proposed transaction. The decision not to proceed was reached only after a great deal of deliberation and only after exploring all available alternatives. We regret the negative comments that were directed at us by URI, and are pleased that the court chose to decide the case on the merits and confirm that Cerberus acted in accordance with its rights and obligations.
Shares in United Rentals fell 17 percent Friday afternoon, closing at $17.91.
Go to Article from Bloomberg News »
Kicking the Poison-Pill Habit
Corporate governance groups might want to raise a toast this New Year’s: It seems they are making headway in pushing public companies toward shareholder-friendly reforms. At least, that’s what a recent study from law firm Shearman & Sterling suggests.
The firm’s fifth annual “Corporate Governance Survey” of the 100 biggest U.S. public companies found big declines in recent years in the number that have “poison pills,” which make hostile takeovers prohibitively expensive for acquirers, and classified boards, which make it difficult for an acquirer to shake up a company’s board of directors.
Just 17 of the 100 companies had poison pills in place in 2007, almost half the number in 2004, and only 33 of the companies in this year’s survey had classified boards, a nearly 40 percent decrease from 2004.
But the news from the corporate governance front was not all positive, as Jeff Nash of Financial Week reports. A study released earlier this week by Corporate Library’s researchers found that executive pay continued its steady climb in 2007. Mr. Nash noted that compensation for chief executives at S&P 500 companies increased by 23 percent in 2007, bringing the new median pay up to more than $8.8 million.
Go to Summary of Shearman & Sterling Survey »
Go to Article from FinancialWeek »
The firm’s fifth annual “Corporate Governance Survey” of the 100 biggest U.S. public companies found big declines in recent years in the number that have “poison pills,” which make hostile takeovers prohibitively expensive for acquirers, and classified boards, which make it difficult for an acquirer to shake up a company’s board of directors.
Just 17 of the 100 companies had poison pills in place in 2007, almost half the number in 2004, and only 33 of the companies in this year’s survey had classified boards, a nearly 40 percent decrease from 2004.
But the news from the corporate governance front was not all positive, as Jeff Nash of Financial Week reports. A study released earlier this week by Corporate Library’s researchers found that executive pay continued its steady climb in 2007. Mr. Nash noted that compensation for chief executives at S&P 500 companies increased by 23 percent in 2007, bringing the new median pay up to more than $8.8 million.
Go to Summary of Shearman & Sterling Survey »
Go to Article from FinancialWeek »
U.S. mergers hit new record, but lag Europe
PHILADELPHIA: Merger volume hit a record $1.57 trillion (786 million pounds) in the United States in 2007, according to research firm Thomson Financial, despite a sharp decline in dealmaking at mid-year when credit markets tightened and mergers became more costly to finance.
Globally, mergers totalled a record $4.38 trillion in 2007, up 21 percent from 2006, while U.S. volume rose 5.5 percent to $1.57 trillion, according to preliminary figures released by Thomson late on Wednesday. For the first time in five years, the U.S. lagged dealmaking in Europe, where mergers totalled $1.78 trillion.
The bulk of the U.S. merger volume in the first half of the year was fuelled by easily obtained debt financing that helped private equity firms and other buyers borrow large amounts of money at attractive rates.
Globally, mergers totalled a record $4.38 trillion in 2007, up 21 percent from 2006, while U.S. volume rose 5.5 percent to $1.57 trillion, according to preliminary figures released by Thomson late on Wednesday. For the first time in five years, the U.S. lagged dealmaking in Europe, where mergers totalled $1.78 trillion.
The bulk of the U.S. merger volume in the first half of the year was fuelled by easily obtained debt financing that helped private equity firms and other buyers borrow large amounts of money at attractive rates.
Wednesday, December 12, 2007
M&A forecasters on 2008: Middle market and cross-border deals
Corporate Dealmaker Forum, Decemeber 12, 2007:
'Tis the season for predictions, and we've just received two sets from two different M&A market participants. Middle-market investment bank Harris Williams & Co. expects: PE megadeals will continue to be on hold; valuations will ease somewhat; more cross-border activity, including foreigners shopping in the U.S.; and opportunities for strategic buyers.
PricewaterhouseCoopers' Transaction Services is on a similar wavelength, adding that international buyers are already busy acquiring U.S. targets. For the first 11 months of 2007, cross-border deal value was $354 billion, PwC says, representing 23% of the U.S. total, a 73% increase from the annual 2006 cross-border deal value of $204 billion. PwC's Bob Filek also sees a possible rebound for leveraged lending, and with it, some PE activity. “The core fundamentals of corporate borrowings on the leverage market are solid relative to historical standards. Leveraged lending caught a cold from the subprime mortgage market,” says Filek. — Kenneth Klee
See other Harris Williams M&S trend reports
More trends and analysis from PwC
'Tis the season for predictions, and we've just received two sets from two different M&A market participants. Middle-market investment bank Harris Williams & Co. expects: PE megadeals will continue to be on hold; valuations will ease somewhat; more cross-border activity, including foreigners shopping in the U.S.; and opportunities for strategic buyers.
PricewaterhouseCoopers' Transaction Services is on a similar wavelength, adding that international buyers are already busy acquiring U.S. targets. For the first 11 months of 2007, cross-border deal value was $354 billion, PwC says, representing 23% of the U.S. total, a 73% increase from the annual 2006 cross-border deal value of $204 billion. PwC's Bob Filek also sees a possible rebound for leveraged lending, and with it, some PE activity. “The core fundamentals of corporate borrowings on the leverage market are solid relative to historical standards. Leveraged lending caught a cold from the subprime mortgage market,” says Filek. — Kenneth Klee
See other Harris Williams M&S trend reports
More trends and analysis from PwC
Sallie Mae’s Buyers Walk Away from the Table
So long, Sallie.
The SLM Corporation, the big student lender known as Sallie Mae, said Wednesday that its offer to craft an “alternative transaction” with a group led by J.C. Flowers & Company had been rebuffed — an announcement that seemed to erase any hope that its embattled $25 billion buyout deal could be renegotiated. In a press release, SLM said the would-be buyer “does not wish to pursue” an opportunity to submit a new bid and indicated that it will “pursue all available recourse, including the company’s existing lawsuit against the buyer’s group.”
Shares of SLM fell nearly 10 percent after the statement was released. At $27.73, they were at their lowest level in at least five years, after adjusting for stock splits.
Sallie Mae and the bidding consortium, which also includes J.P. Morgan Chase and the Bank of America, have been feuding for months about whether the buyers can walk away from the deal without paying a $900 million termination fee. At the heart of the dispute is recently passed legislation that would hurt Sallie Mae’s business.
There is already a suit pending in Delaware’s Court of Chancery, with a tentative trial date in July.
Go to Press Release from SLM via PRNewswire »
The SLM Corporation, the big student lender known as Sallie Mae, said Wednesday that its offer to craft an “alternative transaction” with a group led by J.C. Flowers & Company had been rebuffed — an announcement that seemed to erase any hope that its embattled $25 billion buyout deal could be renegotiated. In a press release, SLM said the would-be buyer “does not wish to pursue” an opportunity to submit a new bid and indicated that it will “pursue all available recourse, including the company’s existing lawsuit against the buyer’s group.”
Shares of SLM fell nearly 10 percent after the statement was released. At $27.73, they were at their lowest level in at least five years, after adjusting for stock splits.
Sallie Mae and the bidding consortium, which also includes J.P. Morgan Chase and the Bank of America, have been feuding for months about whether the buyers can walk away from the deal without paying a $900 million termination fee. At the heart of the dispute is recently passed legislation that would hurt Sallie Mae’s business.
There is already a suit pending in Delaware’s Court of Chancery, with a tentative trial date in July.
Go to Press Release from SLM via PRNewswire »
Monday, December 10, 2007
Deal for Myers won't close as scheduled
Crain's Cleveland Business is reporting today that "the acquisition of Myers Industries Inc. (NYSE: MYE) for $22.50 a share by an affiliate of Goldman Sachs will not close by the end of this week as originally planned, if the deal ever is completed at all.
The Akron-based manufacturing and distribution company said the Goldman Sachs affiliate, GS Capital Partners, has requested more time to complete the acquisition of Myers. However, as part of the agreement to extend the closing deadline to April 30, 2008, from Dec. 15, 2007, Myers is free to respond to takeover proposals solicited or received from other parties during the extension period and will not be required to pay a termination fee to GS Capital Partners if it enters into an alternative transaction.The announcement caused the stock of Myers to plunge from the outset of trading today, and it has not improved throughout the session. Shortly after 1 p.m., Myers was trading for around $15.70 a share, down 27% from its Friday close of $21.56.In consideration for extending the closing date of the transaction, GS Capital Partners has agreed to make a non-refundable payment to Myers of a previously agreed upon $35 million fee. Myers said GS Capital Partners also has secured an extension of its debt financing commitments from Goldman Sachs Credit Partners and Key Bank, under which GS Capital Partners has agreed to contribute another $30 million of equity to the transaction.Myers said GS Capital has acknowledged that there has been no material adverse change in Myers’ business, and the deadline extension request “resulted from its desire to further evaluate conditions in certain industries in which Myers operates.”John C. Orr, Myers president and CEO, said in a statement: “Both sides continue to work closely to complete this transaction. In light of GSCP’s request for an extension, which we received the evening of Dec. 7, 2007, the board of directors determined that it is in the best interest of Myers’ shareholders to preserve this opportunity.” On Nov. 30, Myers made an exception to its policy of not responding to market rumors when it addressed rumors that its acquisition by GS Capital Partners would not close as scheduled. Myers said at the time it had not received any indication from its would-be acquirer that it did not intend to close the transaction within the time frame provided by their merger agreement.Myers in late April announced it had reached a definitive agreement to be acquired by GS Capital for $1.1 billion, including the assumption of certain debt. However, turmoil in the credit markets has caused some market observers to question whether the transaction will happen.In early November, Myers reported a sharp drop in third-quarter earnings despite a double-digit increase in sales. The company said net income in the period fell 75%, to $1.5 million, or four cents a share, from $6.1 million, or 17 cents a share.Myers said results in the latest third quarter were hurt by restructuring expenses, foreign currency transaction losses and expenses related to two acquisitions that were completed early this year. Myers also saw softness in several end markets and encountered increased resin prices.
The Akron-based manufacturing and distribution company said the Goldman Sachs affiliate, GS Capital Partners, has requested more time to complete the acquisition of Myers. However, as part of the agreement to extend the closing deadline to April 30, 2008, from Dec. 15, 2007, Myers is free to respond to takeover proposals solicited or received from other parties during the extension period and will not be required to pay a termination fee to GS Capital Partners if it enters into an alternative transaction.The announcement caused the stock of Myers to plunge from the outset of trading today, and it has not improved throughout the session. Shortly after 1 p.m., Myers was trading for around $15.70 a share, down 27% from its Friday close of $21.56.In consideration for extending the closing date of the transaction, GS Capital Partners has agreed to make a non-refundable payment to Myers of a previously agreed upon $35 million fee. Myers said GS Capital Partners also has secured an extension of its debt financing commitments from Goldman Sachs Credit Partners and Key Bank, under which GS Capital Partners has agreed to contribute another $30 million of equity to the transaction.Myers said GS Capital has acknowledged that there has been no material adverse change in Myers’ business, and the deadline extension request “resulted from its desire to further evaluate conditions in certain industries in which Myers operates.”John C. Orr, Myers president and CEO, said in a statement: “Both sides continue to work closely to complete this transaction. In light of GSCP’s request for an extension, which we received the evening of Dec. 7, 2007, the board of directors determined that it is in the best interest of Myers’ shareholders to preserve this opportunity.” On Nov. 30, Myers made an exception to its policy of not responding to market rumors when it addressed rumors that its acquisition by GS Capital Partners would not close as scheduled. Myers said at the time it had not received any indication from its would-be acquirer that it did not intend to close the transaction within the time frame provided by their merger agreement.Myers in late April announced it had reached a definitive agreement to be acquired by GS Capital for $1.1 billion, including the assumption of certain debt. However, turmoil in the credit markets has caused some market observers to question whether the transaction will happen.In early November, Myers reported a sharp drop in third-quarter earnings despite a double-digit increase in sales. The company said net income in the period fell 75%, to $1.5 million, or four cents a share, from $6.1 million, or 17 cents a share.Myers said results in the latest third quarter were hurt by restructuring expenses, foreign currency transaction losses and expenses related to two acquisitions that were completed early this year. Myers also saw softness in several end markets and encountered increased resin prices.
Are PE Firms Finding It Harder to Exit?
Deal Journal - WSJ.com, December 10, 2007, 10:13 am
Are PE Firms Finding It Harder to Exit?
Posted by Stephen Grocer
Saying goodbye seems to be getting more difficult these days.
It has been well documented here at Deal Journal — as well as most other financial publication — that the past four months have been a trying time for private-equity firms to make acquisitions. The data also suggest firms are finding it harder to exit the businesses they do buy.
World-wide volume for two private-equity exit strategies — secondary buyouts and trade sales — have been depressed the past four months, according to Dealogic. Secondary buyouts are the sale of a PE portfolio company to another buyout shop; trade sales occur when a private-equity firm sells a company it owns to another company in the same field. (And for those wondering about IPOs, The Wall Street Journal pointed out a few weeks ago that the IPO market may be becoming less hospitable to private-equity firms.)
Granted, this isn’t all that surprising. After all, the turmoil in the credit markets has hampered buyout firms from making acquisitions and whether it is a PE firm or company on the selling side wouldn’t affect that. Still, it is interesting to note the correlation.
For both global private-equity deal and exit volumes, each of the past four months rank among the five lowest monthly totals of the year, according to Dealogic. November’s exit volume from secondary buyouts and trade sales was the lowest of the year at $13.2 billion, down almost 75% from the high of July. The last month to witness lower volume from secondary buyouts and trade sales was September 2006.
Four months did come in lower than November in terms of world-wide private-equity deal volume, though November buyout volume was down 83% from its peak in May.
Are PE Firms Finding It Harder to Exit?
Posted by Stephen Grocer
Saying goodbye seems to be getting more difficult these days.
It has been well documented here at Deal Journal — as well as most other financial publication — that the past four months have been a trying time for private-equity firms to make acquisitions. The data also suggest firms are finding it harder to exit the businesses they do buy.
World-wide volume for two private-equity exit strategies — secondary buyouts and trade sales — have been depressed the past four months, according to Dealogic. Secondary buyouts are the sale of a PE portfolio company to another buyout shop; trade sales occur when a private-equity firm sells a company it owns to another company in the same field. (And for those wondering about IPOs, The Wall Street Journal pointed out a few weeks ago that the IPO market may be becoming less hospitable to private-equity firms.)
Granted, this isn’t all that surprising. After all, the turmoil in the credit markets has hampered buyout firms from making acquisitions and whether it is a PE firm or company on the selling side wouldn’t affect that. Still, it is interesting to note the correlation.
For both global private-equity deal and exit volumes, each of the past four months rank among the five lowest monthly totals of the year, according to Dealogic. November’s exit volume from secondary buyouts and trade sales was the lowest of the year at $13.2 billion, down almost 75% from the high of July. The last month to witness lower volume from secondary buyouts and trade sales was September 2006.
Four months did come in lower than November in terms of world-wide private-equity deal volume, though November buyout volume was down 83% from its peak in May.
Friday, December 07, 2007
Congress Moves Toward Agreement on Blocking U.S. Minimum Tax
Dec. 7 (Bloomberg) -- Congress moved closer to protecting 23 million households from the alternative minimum tax as Senate Democrats dropped a demand to link it to a tax increase on executives at private equity firms and hedge funds.
The Senate approved a one-year, stop-gap measure that temporarily indexes the minimum tax for inflation, sparing 23 million American households from an average tax increase of $2,000 this year.
The 88-5 vote puts pressure on the House to abandon its own legislation that links the minimum tax relief, aimed at middle- class families, to higher taxes on executives of hedge funds, buyout firms, as well as real estate and other partnerships.
Senate Majority Leader Harry Reid said House Democrats would accept the Senate action. Minutes later, House Ways and Means Chairman Charles Rangel, a New York Democrat, issued a statement saying he would try to alter the Senate measure to close a tax loophole that allows hedge fund managers to defer taxes on money in offshore accounts.
``The House will consider these amendments so that we may give the Senate another chance to do the right thing and pass responsible AMT relief,'' Rangel said.
Rangel earlier yesterday said he wouldn't oppose removing a provision that would boost the tax on so-called carried interest, the performance fees that managers of private equity firms, hedge funds and some real estate and oil and gas partnerships earn.
The Senate approved a one-year, stop-gap measure that temporarily indexes the minimum tax for inflation, sparing 23 million American households from an average tax increase of $2,000 this year.
The 88-5 vote puts pressure on the House to abandon its own legislation that links the minimum tax relief, aimed at middle- class families, to higher taxes on executives of hedge funds, buyout firms, as well as real estate and other partnerships.
Senate Majority Leader Harry Reid said House Democrats would accept the Senate action. Minutes later, House Ways and Means Chairman Charles Rangel, a New York Democrat, issued a statement saying he would try to alter the Senate measure to close a tax loophole that allows hedge fund managers to defer taxes on money in offshore accounts.
``The House will consider these amendments so that we may give the Senate another chance to do the right thing and pass responsible AMT relief,'' Rangel said.
Rangel earlier yesterday said he wouldn't oppose removing a provision that would boost the tax on so-called carried interest, the performance fees that managers of private equity firms, hedge funds and some real estate and oil and gas partnerships earn.
In Deal Opinions, Independence Takes a Back Seat
NYT.com, Dealbook, December 7, 2007
According to a recent study by Thomson Financial, only 12 percent of deals in which there was a fairness opinion involved an “independent” firm, as opposed to an investment bank that was getting other fees as part of the transaction. It’s a notable statistic, especially when juxtaposed with this one: Nearly three-fourths of the portfolio managers and analysts surveyed by Thomson said they favored using an independent firm for fairness opinions.
Fairness opinions have long been the subject of hand-wringing on Wall Street.
Companies involved in mergers often order up these opinions, but the harsh truth is that they are widely seen as a way to ward off future lawsuits — and not earnest requests for financial analysis.
In general, the firm that draws up the fairness opinion is an investment bank that already has skin in the game. This may be because the bank will get a big advisory fee (much bigger than the fee for the fairness opinion) if the merger is completed. Or it may be because it is also offering financing to the buyer, known as staple financing.
It may come as no surprise that these banks generally find that the proposed deal is, indeed, fair.
Marc Wolinsky, a partner at Wachtell Lipton Rosen & Katz, offered this unusually frank assessment in October: “A fairness opinion, you know — it’s the Lucy sitting in the box: ‘Fairness Opinions, 5 cents.’” (We would note that, for deals valued at more than $5 billion, the median fee for a fairness opinion these days is more like $1.8 million, according to Thomson.)
It is easy to frame the problem, but solutions aren’t so easy to find. Jeff Block, who wrote Thomson’s recent report on fairness opinions, points out that while independence may sound nice, even independent firms depend on referrals and repeat business.
If an independent firm has a reputation for not telling the board what it wants to hear, that firm may quickly find that its phone stops ringing.
Consider this cynical comment from an unnamed buyside equity analyst who took part in Thomson’s survey. Asked if companies should hire an independent third party to render an additional fairness opinion, the analyst said: “It would not introduce additional integrity into an already flawed process. It would only add to the number of pigs feeding at the trough.”
Go to Previous Item from DealBook »
According to a recent study by Thomson Financial, only 12 percent of deals in which there was a fairness opinion involved an “independent” firm, as opposed to an investment bank that was getting other fees as part of the transaction. It’s a notable statistic, especially when juxtaposed with this one: Nearly three-fourths of the portfolio managers and analysts surveyed by Thomson said they favored using an independent firm for fairness opinions.
Fairness opinions have long been the subject of hand-wringing on Wall Street.
Companies involved in mergers often order up these opinions, but the harsh truth is that they are widely seen as a way to ward off future lawsuits — and not earnest requests for financial analysis.
In general, the firm that draws up the fairness opinion is an investment bank that already has skin in the game. This may be because the bank will get a big advisory fee (much bigger than the fee for the fairness opinion) if the merger is completed. Or it may be because it is also offering financing to the buyer, known as staple financing.
It may come as no surprise that these banks generally find that the proposed deal is, indeed, fair.
Marc Wolinsky, a partner at Wachtell Lipton Rosen & Katz, offered this unusually frank assessment in October: “A fairness opinion, you know — it’s the Lucy sitting in the box: ‘Fairness Opinions, 5 cents.’” (We would note that, for deals valued at more than $5 billion, the median fee for a fairness opinion these days is more like $1.8 million, according to Thomson.)
It is easy to frame the problem, but solutions aren’t so easy to find. Jeff Block, who wrote Thomson’s recent report on fairness opinions, points out that while independence may sound nice, even independent firms depend on referrals and repeat business.
If an independent firm has a reputation for not telling the board what it wants to hear, that firm may quickly find that its phone stops ringing.
Consider this cynical comment from an unnamed buyside equity analyst who took part in Thomson’s survey. Asked if companies should hire an independent third party to render an additional fairness opinion, the analyst said: “It would not introduce additional integrity into an already flawed process. It would only add to the number of pigs feeding at the trough.”
Go to Previous Item from DealBook »
Tuesday, December 04, 2007
RiskMetrics Group’s 2008 Board Practices Study
Submitted by: Sarah Cohn, Marketing and Communications
RiskMetrics Group is pleased to present its 2008 Board Practices Study. Some of the key findings from the study revealed:
1) Board independence levels rose to 74 percent in 2007 after having leveled off at 72 percent in 2006 (the first year no increase at all was found from the prior year’s levels).
2) 45 percent of major U.S. companies had separated the posts of chairman and CEO at the time of their most recent shareholder meeting—an increase of 20 percentage points since 2000, and four percentage points over the previous year.
3) The number of companies with staggered boards continued to decline in 2007, to 52 percent overall, down from 55 percent in 2006.
To learn more about the findings from the study, please tune into the Board Practices interview with Carol Bowie of RiskMetrics Group’s Governance Institute, and Patrick McGurn, special counsel at RiskMetrics Group. To access the study, please visit here.
RiskMetrics Group is pleased to present its 2008 Board Practices Study. Some of the key findings from the study revealed:
1) Board independence levels rose to 74 percent in 2007 after having leveled off at 72 percent in 2006 (the first year no increase at all was found from the prior year’s levels).
2) 45 percent of major U.S. companies had separated the posts of chairman and CEO at the time of their most recent shareholder meeting—an increase of 20 percentage points since 2000, and four percentage points over the previous year.
3) The number of companies with staggered boards continued to decline in 2007, to 52 percent overall, down from 55 percent in 2006.
To learn more about the findings from the study, please tune into the Board Practices interview with Carol Bowie of RiskMetrics Group’s Governance Institute, and Patrick McGurn, special counsel at RiskMetrics Group. To access the study, please visit here.
Investors See End to Buyout Boom, Survey Says
How do limited partners feel about the recent shifts in the buyout landscape? More than a bit gloomy, according to a new survey by Coller Capital, which found that most institutional investors think the private equity boom is over, with North America likely to feel the pain most acutely.
The results of the survey, which polled more than 100 limited partners that invest in private equity funds, are hardly surprising given the turmoil in the credit markets, which has made private equity deals much harder and much more expensive.
The survey did produce at least one optimistic finding. Ninety-six percent of the respondents said they plan to increase their private equity investments, and 78 percent plan to increase their relationships with private equity fund managers. Evidently, these investors don’t see any better options for generating high returns on their money.
The private equity boom may be over, but it seems few alternatives have arisen to fill its place.
Go to Press Release from Coller Capital »
The results of the survey, which polled more than 100 limited partners that invest in private equity funds, are hardly surprising given the turmoil in the credit markets, which has made private equity deals much harder and much more expensive.
The survey did produce at least one optimistic finding. Ninety-six percent of the respondents said they plan to increase their private equity investments, and 78 percent plan to increase their relationships with private equity fund managers. Evidently, these investors don’t see any better options for generating high returns on their money.
The private equity boom may be over, but it seems few alternatives have arisen to fill its place.
Go to Press Release from Coller Capital »
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