Inside M&A – October 2015

McDermott Will & Emery has released the October 2015 issue of Inside M&A, which focuses on current issues surrounding special-purpose acquisition companies. Articles in this issue include:

Overview of SPACs and Latest Trends
A number of recent successful business combination transactions involving special-purpose acquisition companies (SPACs) led by prominent sponsors have driven a resurgence in the SPAC inital public offering (IPO) market and an evolution in some SPAC terms. In this article, we provide an overview of SPACs and discuss the latest trends in SPAC structures and terms.

Creative Business Combination Structures Allow SPACs to Successfully Compete with Non-SPAC Bidders
Certain structural features of SPACs that offer benefits to their public investors often put SPACs at a competitive dis-advantage when they are among multiple bidders for a target company. Recent SPAC business combination transactions demonstrate, however, that careful structuring of a transaction to meet the needs of the target’s owners can overcome these structural challenges and level the playing field for SPACs in a competitive bidding process.

SPAC Directors Cannot Take the Protection of the Business Judgment Rule for Granted
A recent decision by the New York State Supreme Court’s Commercial Division—in AP Services, LLP v. Lobell, et al., No. 651613/12—suggests that certain structural terms of SPACs may make it more challenging for the business judgment rule to apply to decisions by SPAC directors to enter into agreements for business combination transactions.

View the full issue (PDF).

Has Private Equity Lost Its Appetite for Buyouts?

The latest analysis by PitchBook would indicate buyout activity is trending down as deal volume and values continue to slide from recent quarters. In the latest report, the triggers for the current market is discussed covering EBITA multiples, debt levels and valuations, as well as where opportunities exist based on the transactional activities of private equity funds.

Read the PitchBook report.

 

Global M&A Activity in 3Q 2015

From PitchBook, the analysis of global M&A activity in the third quarter for 2015 has been released. Around the world M&A activity, in comparison, is below 2014 YTD and 3Q saw the fewest deals completed in a quarter since 2Q 2013.

To learn more and see the infographic on 3Q activity, here.

International News: Focus on Private Equity

McDermott Will & Emery recently published its latest issue of International News, which covers a range of legal developments of interest to those operating internationally. This issue focuses on Private Equity.

Read the full issue.

Focus on Private Equity

The Impact of Regulatory Changes on Private Equity Firms

Taking Advantage of the Consequences of Delisting or Downlisting in Germany

Equity Bridge Facilities and the French Private Equity Market

Will Private Equity Bet on the Price of Oil?

Independent Contractor and Exempt Employee Classification Review Should Include Joint-Employer Status

Private equity often looks to control costs in its portfolio companies through the utilization of joint employees. This On The Subject provides tips and guidelines for private equity firms and their operating companies during a review of its employee classification.

Read the full article.

Focus on Private Equity – July 2015

McDermott Will & Emery has released the latest Focus on Private Equity, which provides insight on issues surrounding private equity transactions and the investment life cycle across industries. Articles in this issue include:

What Private Equity Funds Should Know about ERISA
Managers of private equity funds who are responsible for investing the assets of a fund that holds plan assets are likely to be considered a fiduciary under the Employee Retirement Income Security Act of 1974, as amended (ERISA). ERISA imposes numerous duties on fiduciaries, and those who fail to meet ERISA’s standards may be personally liable to restore plan losses, disgorge profits made through the use of plan assets, and pay additional statutory penalties imposed by the Department of Labor. The fiduciary may also face criminal penalties if found guilty of wilful failure. It is therefore vitally important that fiduciaries are fully aware of all their duties under ERISA.
Read the full article.

Fiduciary Risks Involved in Transferring Assets from a Seller’s 401(k) Plan to the Buyer’s Plan
In transactions where the buyer agrees to cause its 401(k) plan to accept a transfer of assets from the seller’s 401(k) plan, and the seller’s plan contains employer stock as an investment, the buyer needs to be aware of fiduciary concerns that may arise under the Employee Retirement Income Security Act of 1974 (ERISA), as amended. A recent decision means buyer 401(k) plan sponsors and plan fiduciaries must now engage in a process that separates fiduciary from non-fiduciary acts and carefully follows established procedures for implementing any required divestitures of former employer stock.
Read the full article.

View the full issue (PDF)

 

Focus on Private Equity – April 2015

McDermott Will & Emery has released the October 2014 issue of Focus on Private Equity, which provides insight on issues surrounding private equity transactions and the investment life cycle across industries. Articles in this issue include:

The Use of Alternative Credit in Europe
As a result of the reduced availability of conventional credit from lending institutions in the wake of the financial crisis of 2008, Europe has been eager to develop an alternative credit market to unlock the demand for money from small and medium sized enterprises (SMEs).
Read the full article.

Buying and Selling a Craft Brewery in the United States
The craft beer business has never been hotter, with market share now approaching 8 per cent by volume in the United States and margins that have attracted the attention of private equity and venture capital investors, and even large brewers.
Read the full article.

 

Potential Cost Savers in German M&A Transactions – Practical Experience with Notary’s Fees

International investors with corporate transactions in Germany are often surprised to learn that significant costs can be incurred by a German notary as part of a normal corporate transaction.  The involvement of a German notary is in many cases required by law, and the corresponding costs for such notary are set by the German federal statutory cost order (Gerichts- und Notarkostengesetz – GNotKG) with certain caps, however, amounting up to EUR 53,170.  A recent change in the German federal statutory cost order for notaries has increased these costs.

In practice, structures can be modified to save notarial fees without any material deviations of the transaction documents.  For instance, international transaction documents are drafted often as bilingual documents. Under the changes in the new statutory cost order, the value of bilingual documents has increased by 30 percent.  It is worth considering if such translated documents should necessarily become a part of the notarial deed at all or if they may be attached as a non-binding convenience translation to save costs.  In addition, a choice of law clause, which leads to another 30 percent increase in the value of the transaction and unexpectedly higher notary costs, may be (and sometimes even has to be) avoided.

The notarial deed may also incorporate legal issues that increase costs but that do not have to be notarized at all.  Provided that this does not affect the completeness of the notarial deed, certain provisions that would trigger further notary costs (for example, a choice of law clause) can be separated from the notarial deed.  In addition, other legal facts that have to be notarized may be incorporated in one deed instead of two separate ones, thus saving costs as the German federal statutory cost order reduces the overall costs in a percentage basis the higher they are.  Certain transactions such as sales and transfers, or pledges of shares in a GmbH, can also be notarized by a Swiss notary, whose costs can be substantially lower than a German notary´s costs.

In sum, (international) investors should carefully consider ways to avoid increasing notarial fees when entering into corporate transactions in Germany.

Economic Justification in the Assessment of Abusive Terminations of Longstanding Commercial Relationships

International companies with operations in France, or those that conduct regular business with French commercial partners, should be aware that their longtime French commercial partners could be entitled to claim compensation for the termination of the contractual relationship well beyond the scope of the original contractual provisions.

However, recent decisions of the French Supreme Court suggest that judges increasingly take into consideration the existence of economic difficulties as acceptable justification for the termination.

The French Commercial Code provides that the total or partial termination of any kind of longstanding commercial relationship may be qualified as abusive if insufficient notice of termination is given to the contractual partner.  This law, considered as a mandatory public policy statute, applies to all existing commercial relationships.  As a result, a company that terminates a contractual relationship with a French commercial partner must not only consider the contractual notice period, but must also take into account the notion of “reasonable” notice and the criteria developed by the French courts to be able to fully gauge any potential future claims for compensation against it.

In deciding what the appropriate duration of a “reasonable” notice is and the resulting adequate compensation for the terminated party, French case law provides a rule of thumb: three months is usually acceptable when the commercial relationship between the two companies lasted between two and three years; six months in cases in which the contractual relationship between the commercial parties was longer; and even longer notice periods exceeding 12 months can be accepted under French case law when the terminated party was financially dependent on its terminated partner.  Courts then assess the amount of damages based on the loss of profit that the terminated party should have made during the missing months of the “reasonable” notice period.

How can foreign companies mitigate this risk?  To mitigate the risk of a contractual termination being considered as abusive by French courts, companies should try to manage the expectations of their commercial partners and inform them of any potential complete or partial termination of their commercial relationship in writing, well before the contemplated date of termination.  By providing its commercial partner with such information in advance, it will serve to weaken any potential claims for compensation brought by the French commercial partner that was terminated.

If the termination results from the closure of a site, the timing for providing such information is, however, limited by French employment law, which requires a consultation of employee representatives before the decision to close facilities may be made.  Accordingly, it is highly advisable for an international company to consult with legal counsel to ascertain the best approach for handling such a situation.

Nevertheless, the French Supreme Court seems to be increasingly aware that companies face economic circumstances beyond their control, which make terminating the commercial relationship imperative.  As a result, under the recent case law of the French Supreme Court, a termination subsequent to a substantial decrease in the volume of orders may not be considered as abusive if the terminating party is able to provide sufficient evidence of a diminished commercial activity and if the external reasons bring about such a decrease in the volume of orders.

Accordingly, if the termination of the commercial relationship results from the closure of a site, which itself is due to economic difficulties, the international company should make clear in the notice it sends to its commercial partner, that the termination was not a deliberate choice but was necessary due to external economic conditions.

Inside M&A – Winter 2015

McDermott Will & Emery has released the Winter 2015 issue of Inside M&A, which focuses on current issues surrounding mergers and acquisitions.  Articles in this issue include:

Recent U.S. Cases Highlight Liability Risks to Executives in Mining, Heavy Industrial Transactions
Historically, corporate executives rarely faced personal or criminal liability resulting from mining or environmental accidents in the United States. Several criminal cases stemming from two recent disasters, however, indicate that the tide may be turning. These disasters, the repercussions of which have been playing out recently in the U.S. criminal courts, should put private equity and strategic investors in the mining and heavy industrials space on alert. Thorough due diligence into a target’s past operations and compliance record is more important than ever before.
Read the full article.

Options for Buying a UK Company with Multiple Selling Shareholders
In the United Kingdom, the issues and considerations involved in the acquisition of a private company with multiple selling shareholders can be complex. Some of the issues that arise in such acquisitions are similar to those that are considered with publicly traded companies, but would not typically be encountered in the acquisition of a private company with few shareholders.
Read the full article.

Merger Control in Africa
Many African countries have enacted competition law legislation in order to improve market conditions and attract investors. These regimes differ from one country to another, depending on the country’s history, culture, economic development, and whether its legal system is based on common law or civil law. While most African competition regimes contain rules addressing anticompetitive practices (such as collusive practices, abuse of dominance and unfair state aid), the legislation does not always provide for a merger control regime.
Read the full article.

View the full issue (PDF)

LexBlog