Tag archives: post-closing

COVID-19 Series: Considerations and Modifications of Certain Provisions in M&A Agreements (Valuation and Post-Closing Pricing Mechanisms)

In recognition that businesses are adjusting to their “new normal” and some companies are exploring acquisitions or divestitures as opportunities to strengthen their bottom line, we will be publishing a series of blogs aimed at highlighting some of the considerations and key drafting areas in a purchase and sale agreement that parties to Canadian private M&A transactions should consider in light of the COVID-19 pandemic.

Valuation Gaps

The impact of COVID-19 creates a lot of challenges in determining the valuation of a target – which ultimately, helps the parties determine the price of the shares or assets being sold/purchased. For … Continue Reading

Creating value beyond the deal

In today’s M&A market, dealmakers are increasingly under pressure – resulting from increased disruption, industry convergence, technological change and the need to shift to new business models to stay competitive – to maximize and deliver value from each deal they do. One would think, therefore, that value creation would be a priority for dealmakers. However, a recent report by PwC (prepared in conjunction with Mergermarket and Cass Business School) shows that this may not be the case.

Key findings from the report include:

  • Many acquisitions and divestments do not maximize value – even when some dealmakers think they do.
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Strategies for parenting start-ups, post-acquisition

In recent years, we have seen more acquisitions of start-ups by big corporations in the tech industry, healthcare, retail, fashion, beauty, food, and transportation. The benefits of M&A transactions in these sectors has been more widely recognized. For instance, for a start-up, partnering with a large corporation provides broader market access, deeper industry knowledge and accelerated brand development opportunities. From the perspective of the corporation, it means access to growing markets, new technologies, and tapping into niche skills, talents and entrepreneurial and agile culture.

Despite the surging interest in enhancing collaborations between start-ups and bigger companies from both sides, Accenture Continue Reading

Making change management a post-closing priority

As we have previously discussed, successfully directing the integration of two businesses following the closing of an M&A transaction is vital to realizing the value of a merger. The process by which post-closing change within a business is overseen – often referred to as “change management” – plays a key role in determining whether or not the integration process is smooth and the objectives of the merged entity are achieved. According to a report by Bain & Company, people, culture, change management and communication have been identified by business leaders as some of the main causes of poor … Continue Reading

Using M&A playbooks to avoid post-closing issues

Companies spend more than $2 trillion on acquisitions every year, yet many acquisitions ultimately fall short of expectations. There are several reasons why a transaction may not turn out as planned, but oftentimes the culprit is poor post-closing integration. While most transactions are given a great deal of attention until the day of closing, the same degree of attention doesn’t always continue past the closing date to include a post-closing action plan.

How can an M&A playbook help?

M&A playbooks can dramatically help companies reach their transactional goals, especially corporations that routinely engage in M&A transactions. An M&A playbook is … Continue Reading

Specificity is key: six archetypes of successful acquisitions

Canadian M&A activity has continued to rise in 2017, but with the successes come many more stories of failure. Studies indicated that 70% – 90% of acquisitions ultimately fail. How does a company beat these odds? A recent article by McKinsey & Company suggests that companies who enter into acquisitions with a specific value proposition in mind tend to have higher success rates than those with vague, growth strategies. In particular, the authors suggest most successful acquisitions implement one of six strategic models.

Improve the target company’s performance

One acquisition strategy involves purchasing a target company to reduce its costs … Continue Reading

Set up for success? Difficulties in M&A integration

In a previous post, we discussed the impact that deal team size can have on post transaction synergies. A recent report from PwC makes clear that pitfalls in the M&A process hardly disappear once the parties have determined the make-up of their deal team. Indeed, the report suggests that without early planning, rapid execution and long-term commitment to integration completion, it will be difficult for a merger or acquisition to achieve its goals and deliver value. In an era of growing workplace diversity where numerous industries are undergoing digital disruption, this can be easier said than done.

Transformational change

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How deal team size can help produce post-transaction synergies

Deal Law Wire - Norton Rose FulbrightRegardless of whether the parties are public or private, the potential synergies that can be gained from an M&A transaction are among the most common reasons cited by acquirers when justifying their proposed transactions to stakeholders. However, without careful planning and execution, these synergies often fail to have the impact on the bottom line that management expects when deals are first conceived. A recent article by McKinsey & Company suggests that by broadening their deal teams, acquirers may be better equipped to realize these post-transaction synergies.

Problems with lean transaction teams

Typically, executives tend to keep deal teams as lean … Continue Reading

Shareholder representatives in M&A

The post-closing process can be complex and time consuming. Hiring a professional independent shareholder representative to manage post-closing matters, such as purchase price adjustments, indemnification claims, earn-outs and escrow management, may be beneficial for target shareholders and management. In recent years, shareholder representatives have been commonly used in the U.S., and they are becoming increasingly common in Canada.

There are many benefits to hiring a shareholder representative to deal with post-closing matters:

  • Avoid conflicts of interest. When the purchaser decides to continue to employ target executives and management post-transaction, there is an inherent conflict of interest for the target
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Managing the psychological impact of M&A

MA_680x220Studies reveal that 50 to 70% of M&A transactions ultimately fail to realize expected synergies and, in fact, many actually dilute shareholder value. One of the causes of M&A failures is that companies often neglect to adequately consider the psychological impact of M&A on their employees.

Will I be laid off? Will I be moved to a different position? Will I get along with my new colleagues? Like downsizing and other types of organizational change, M&A creates considerable uncertainty and has widespread psychological effects on employees in every level. A paper by People & Culture identifies the following potential psychological … Continue Reading

How can companies retain talent during M&A?

Jimmy’s biotech company was doing well. A deal was on the table for a massive pharma conglomerate, Massive-Pharm, to purchase his company via an asset purchase agreement. Everything was going well, that is, until Jimmy’s top sales star, Terry, leveraged the impending purchase to secure a better-paying position at Jimmy’s competitor. After Jimmy’s company lost Terry, Massive-Pharm pulled the deal.

Believe it or not, Jimmy’s situation is not an entirely uncommon one in the M&A world. Purchase agreements often contain legal clauses allowing acquiring companies to back out of deals should the target company lose key employees prior to closing. … Continue Reading

Employee retention: good people equals better results

Light BulbHuman capital is a critical component of any merger or acquisition.  High profit margins and synergistic gains cannot be realized without key talent who are able to motivate employees to achieve high levels of performance. Although there is no simple solution to retaining top performers, retention strategies should be adopted in any merger or acquisition. The most common retention award offered to executives and employees is a cash bonus, calculated as a percentage of base salary.  Expressed relative to purchase price, retention budgets are quite minimal and are usually borne by the purchaser.

The Global M&A Retention Study conducted by Continue Reading

M&A success and the role of audit committee

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The role of the audit committee over the last several years continues to evolve in conjunction with the risks to business and financial reporting changes.  The traditional role of overseeing financial reporting and internal and external auditing now encompasses a much broader scope.  Today’s audit committees still maintain their central mandates but they also frequently gauge risk in its countless forms.  With all of these changes, it was foreseeable that the scope and influence of the audit committee would expand during the M&A process and, due to the committee’s experience, would become more involved in the M&A lifecycle, from evaluating … Continue Reading

Negotiating earn-outs: five key questions to keep in mind

The inclusion of an earn-out clause in a purchase agreement can be a useful tool to help bridge the valuation gap between buyer and seller. Broadly speaking, an earn-out ties a portion of the purchase price to the performance of the business following the acquisition, which the seller can “earn” by meeting post-closing performance targets. According to the American Bar Association’s 2014 Canadian Private Target Mergers & Acquisitions Deal Points Study (the 2014 ABA Study), earn-out clauses were present in 25% of the transactions surveyed, a slight increase from 21% in the American Bar Association’s 2012 study and a … Continue Reading

Tips for M&A success

The success rate of M&A deals has somewhat improved in the new millennium, increasing from an average of 35% to 55%. That still leaves almost half of all deals floundering, begging the question, “What are they doing wrong?”

Based on interviews with “hundreds” of dealmakers, Prof. Scott Moeller, director and founder of the M&A Research Centre at London’s Cass Business School, expounded on the best tips for M&A success in a Raconteur op-ed piece. He boiled these down to two main objectives: focus on strategy and retain existing customers. These may seem trite at first glance, but Moeller points … Continue Reading

Locking the box: an emerging tool to avoid post-closing negotiations

In Canada, private M&A transactions have long followed a familiar structure: the parties settle on a “cash free, debt free” price, which then must be adjusted post-closing to account for the target’s actual cash, debt and working capital (or other measures such as net assets) in an effort to reach the true “equity value” of the business. Calculating and settling these post-closing adjustments to the purchase price can frequently take many months and is one of the main causes of acrimony between buyers and sellers.

In light of these frustrations, it is perhaps unsurprising that one recent trend that has … Continue Reading

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