Blog Archive
11.05.2009More Data on Earnout Challenges
We’ve written in the past about the risks and challenges of earnout provisions in M&A agreements. They’re fraught with risk of post-closing disputes. read more
11.02.2009Creation Contemplation
It seems a number of cities have refocused their efforts to galvanize entrepreneurship in their communities, and there is no shortage of suggested solutions. In New York City, a new report released by the Center for an Urban Future highlights the complexity involved to build an entrepreneurial community. read more
10.29.2009Don't Leave Out the Yankees
We’ve seen a few deals recently that missed the implications of recent changes to the New York General Obligations Law. This statute could make it significantly more burdensome for an individual in New York to properly grant power of attorney to someone else. read more
10.28.2009More Data on Earnout Challenges
We’ve written in the past about the risks and challenges of earnout provisions in M&A agreements. They’re fraught with risk of post-closing disputes. read more
10.19.2009Where Private Meets Public? Nasdaq Plans Private Company Exchange
As reported in Venture Capital Dispatch, Nasdaq disclosed that it is considering establishing a marketplace where shareholders of private (VC-backed) companies could sell their shares. Similar to PORTAL, which allows qualified investors to trade unregistered securities, the proposed market would provide a regulated environment for trading shares in companies not yet ready for the public markets. read more
10.16.2009Light at the End of the Tunnel or Roadblock Ahead?
Some VCs say the worst is yet to come. A post in the Wall Street Journal today relates the opinions of a few VC veterans at the Venturewire Technology Showcase regarding the future of venture capital. read more
10.06.2009Fiduciary Duty - Watch Out When Approving Distressed Sales
Dennis White, an attorney at McDermott Will and Emery, had an interesting post in the New York Times recently regarding the In re Trados Incorporated Shareholder Litigation case. This case questions the degree of deference courts will give directors under the business judgment rule when they approve a sale of a business in which some or all of the directors have a possible conflict of interest and common stockholders are wiped out. read more
09.28.20092009 Escrow Study from JP Morgan – Escrow Claims are on the Rise
JP Morgan recently completed their 2009 study of escrows associated with M&A transactions. Surveying 445 deals from across the US that closed between January 2007 and June 2008, the study’s results are consistent with both SRS’s experience and Cooley Godward Kronish’s recent observations that post-closing disputes are on the rise. read more
09.17.2009VCs Doing First Rounds Themselves
The Wall Street Journal recently posted a study indicating that VCs are doing more financings themselves without looking to syndicate the deals. This is consistent with what we’ve seen and heard, and reminds me of an old poker saying – “If it’s good enough for a call, it’s good enough for a raise. read more
09.11.2009M&A Market Set to Rebound?
The Wall Street Journal’s Venture Dispatch recently had an interesting piece on Accel VC Jim Breyer and his thoughts on the M&A market. His view is that there are still fast-growing companies in media and technology that are likely to get acquired, but that price can be a sticking point. read more
09.06.2009Checking Out
At closing, most information statements and letters of transmittal give the shareholders the option of receiving their proceeds by wire transfer or check. We think there is an often overlooked alternative: electronic checks. read more
09.02.2009To Be or Not to Be, or Why a W-2 or 1099-B?
Paying employee shareholders in a merger can get a little confusing. In most transactions, employee shareholders (and vested options holders), share in the proceeds of the merger and escrow. read more
08.31.2009When a Penny Saved Costs More Than a Penny Earned
During the life of the post-closing period, most escrows are invested in short-term, highly liquid instruments like bank money market accounts or money market funds. At the end of the escrow period, assuming no claims are made, the balance of the escrow account is distributed to the selling shareholders plus of any investment earnings. read more
08.24.2009What's an Average Expense Fund?
SRS always recommends including an expense fund in a merger in case it becomes necessary to defend against a claim on an escrow or holdback. The next logical question is, how big should the expense fund be? We looked at our data and found that 2 out of 3 deals had an expense fund. read more
08.19.2009Exit Opportunities and the Micro-IPO
No one argues that exits are important for VCs and companies. While the IPO market is showing signs of life and some companies are able to exit through M&A, as we wrote yesterday, it’s taking longer for venture-backed companies to exit. read more
08.18.2009A Long and Winding Road - Now Even Longer
Newly released Silicon Valley Bank research finds that the road to exit for many VC-backed companies is longer. (We note however, that both biopharmaceutical and semiconductor companies appear to buck the trend. read more
08.12.2009Thinking About Your Earn-out
Difficulties surrounding earn-outs in mergers are nothing new, but a new study recently released by the Mergers and Acquisition Law Report by BNA points to an increase in the use of earn-outs due to greater economic uncertainty. Earn-outs in general involve a practice of tying some portion of the purchase price for a company to the performance of that company after the merger closes. read more
08.05.2009Beware of Deferred Tax Assets and Liabilities
Most private equity sales include post-closing adjustments for differences in net working capital from either an amount estimated at closing or a target negotiated between the parties. While most agreements call for the various balance sheets to be GAAP compliant and based on the historical practices of the target company, it is, as we’ve said in prior posts important that the parties clearly understand (and define in the merger agreement) the calculation of net working capital. read more
07.23.2009SEC: Killing an Ant with a Bazooka
Yesterday, the SEC proposed new rules regarding “Pay-to-Play” practices. While some additional oversight makes sense in light of recent scandals, there is concern about other provisions such as the one prohibiting placement agents. read more
07.22.2009Trevor Loy Testimony
More voices have joined the choir protesting additional administrative burdens for venture capital firms. VC Trevor Loy from Flywheel Ventures recently testified before a Senate Banking Sub-Committees opposing the regulation. read more
07.20.2009Captive Cash: Tying Up Escrow Funds Indefinitely
Your escrow period is nearing its end. Moments before the expiration, the acquirer informs you that they want the bank to continue to hold a significant portion of the escrow beyond the expiration date because they believe one or more potential claims could still come. read more
07.15.2009Hiring SRS After a Merger
Normally SRS engages the seller and the buyer in an M&A deal sometime after the term sheet is signed but before the closing. We use that time to review a close-to-final draft of the merger agreement, do our own due diligence, and get approval from the shareholders. read more
07.13.2009Public-to-Public M&A Deals – Should There Be a Shareholder Rep?
This blog entry was originally posted at peHUB on July 6th Somebody recently asked us if we expected to be appointed the post-closing representative for the former Data Domain shareholders, regardless of who bought them (the company is currently “in play” with both EMC and Netapp making bids). After all, many of Data Domain’s major shareholders are VCs (including Greylock Partners, New Enterprise Associates and Sutter Hill Ventures), even though the company went public in 2007. read more
07.10.2009M&A Litigators See Rise in Post-Closing Disputes - Advice from the 16th Annual Private Equity CFO Conference
07.07.2009
Picking Up the Tab Post-Closing
We’ve had other posts on the advisability of forming an expense fund for a variety of reasons, primarily to provide a means to mount a defense against a claim from Buyer, if necessary. Another reason for having an expense fund came up recently on one transaction that raises an issue some M&A attorneys may not be thinking of when drafting. read more
07.04.2009Making Sense out of Two Cents
Some things make no sense but are done anyway. In a recent M&A deal, the escrow period expired and all funds had been distributed to shareholders from the escrow except for a portion of the proceeds that was withheld for an unresolved claim. read more
07.02.2009Regulation and Registration of Private Equity/Venture Capital
Last week, CCH released a white paper outlining President Obama’s proposed regulation of hedge funds, private equity, and venture capital. To view the full text of the White House’s proposal, click here. read more
06.26.2009VCs Benefit from Big Backyards
A new report from Harvard this month examines locality as a factor for the success of both venture capital firms and their portfolio companies. Its key finding is that VCs seem to get higher returns when investing in deals outside their top hubs for venture deals. read more
06.22.2009Shedding Light on Working Capital Adjustments
Laurus Transaction Advisors and our friend Gino Maurelli, a partner at Holme Roberts & Owen recently led a presentation on the nuances of working capital issues. We’ve been preaching for a while that these terms are complicated, can lead to unnecessary disputes if not drafted carefully, and often do not have enough detail spelled out in the merger agreement. read more
06.19.2009Venture Capital Overfunded?
Much has been written recently about how the VC industry is over-funded and needs a macroeconomic correction in the aggregate amount of money invested in funds in order to return to a healthy state. This is one of the factors cited as driving down average industry returns. read more
06.15.2009What Happens if the Buyer Doesn’t Deliver Working Capital Adjustments Statements Within the Required Time?
We’ve seen a lot of deals lately in which the working capital section is something along the lines of the following: 1. At closing, seller shall deliver its working capital statement. read more
06.12.2009Deloitte Releases New Report on VC Trends
Deloitte just released an interesting report on Global Trends in Venture Capital. The report was based on responses from over 700 general partners at VC firms around the world. read more
06.08.2009The Expense Escrow or “Fighting Fund”
Every merger agreement contemplates a process for the buyer to make claims and for the selling shareholders, through the shareholder representative, to review and either agree with or dispute the claim. An expense fund or an expense escrow is a voluntary set aside by the shareholders at closing for third party expenses incurred during the post-closing period. read more
06.02.2009Shareholder Representative Services (SRS) Professionalizes the Post-Closing Escrow Period for Southeast Venture Capitalists
Former Shareholders of APEX Analytix Name SRS as their Representative in M&A Deal With PNC Equity Partners.
05.30.2009The Rep’s Ability to Amend the Agreement Following Closing
The typical merger agreement gives authority to the rep to agree to amendments following closing. This makes sense because unforeseen circumstances sometimes arise that may make some term of the agreement more burdensome than it needs to be, so the buyer and the rep logically agree to change the terms. read more
05.22.2009New European Study of M&A Agreements
Yesterday, a European company called CMS that works in the M&A world released a report analyzing almost 500 European M&A agreements in 2007 and 2008. The report looked at public and private company mergers with some interesting results. read more
05.15.2009Will Your Lawyer be Available to You After Closing?
Most shareholders of a selling company and reps take for granted that the lawyer who represented them in connection with the merger will be available to represent them again should any disputes arise following closing. Intuitively, that makes sense. read more
04.30.2009Should the Rep Indemnify the Escrow Agent?
The escrow agreement in most M&A deals contains a section that says that the buyer and the rep jointly and severally indemnify the escrow agent against all acts performed by it absent gross negligence or willful misconduct. Many reps assume they have no choice but to accept this. read more
04.21.2009SRS to Host First Adventures in Food and Drink at the NVCA in Boston
SRS | Shareholder Representative Services is hosting an invitation-only event, Adventures in Food and Drink at the NVCA, for CFOs, COOs and general counsels of venture capital firms in conjunction with the upcoming Annual Meeting of the National Venture Capital Association in Boston. This SRS Client Appreciation Event will be held at LTK Bar and Kitchen, the “test kitchen” of Legal Sea Foods, and is walking distance from the Westin Hotel where the NVCA conference is being held, starting at 6:30pm on Wednesday, April 29. read more
04.15.2009In what capacity should the Shareholder Rep be signing the merger agreements?
We’ve seen lots of contracts in which the shareholder rep just signs the agreement in his or her individual capacity. This is surprising, because these are individuals who have been well trained not to sign other agreements as individuals. read more
04.01.2009Forming a Newco to be the Shareholder Rep
We’ve seen a few transactions on which the shareholders form a new entity (“Newco”) to be the shareholder rep. The new company is then typically controlled in some fashion by one or two of the major shareholders or members of management. read more
03.25.2009Getting Someone Else to be the Rep?
If another shareholder is willing to serve as the representative, many of the other investors may consider the issue resolved. While this will pass the risks and burdens of serving as the rep to another party, it is often easier said than done. read more
02.15.2009Shareholder Representative: Not a Passive Job
When we first started SRS, we talked to a number of people who said “the beauty of your business is that there’s nothing to do on your engagements if the buyer doesn’t make a claim.” That’s not accurate and represents what we see as a pervasive misunderstanding in the market about a shareholder rep’s duties and obligations. read more
01.20.2009Inauguration Day
In connection with our work as the shareholder representative on numerous M&A transactions, we come across a number of issues that have been challenges to professional dealmakers. We also have the opportunity to see many different deal terms and best practices. read more
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