GLOBAL TRANSACTIONS: BEST PRACTICES AND RECENT TRENDS

Transcription

1 GLOBAL TRANSACTIONS: BEST PRACTICES AND RECENT TRENDS October 3, 2017 *This presentation is offered for informational purposes only, and the content should not be construed as legal advice on any matter. October 3,

2 Panelists Kevin C. Bennett Principal, Forensic & Valuation Services, Grant Thornton Minneapolis Jim Terpstra Senior Director, Corporate Development, Groupon Chicago Greg Grossman Partner, Corporate, DLA Piper Chicago Jon King Partner, Litigation, DLA Piper Chicago Kathleen Smith Ruhland Partner, Corporate, DLA Piper Minneapolis/Chicago October 3,

3 Agenda 8:00 am Registration, breakfast and networking 8:30 am 10:00 am Global mergers & acquisitions: Best practices; issues and considerations; due diligence 10:00 am 10:15 am 11:00 am 11:00 am 11:15 am 12:00 pm Networking break Cross-border joint ventures and partnerships Networking break Strategic investments October 3,

4 8:30 am 10:00 am Global mergers & acquisitions: best practices; issues and considerations; due diligence

5 Global trends M&A activity in the first half of 2017 was just slightly off track compared to the first half of 2016 US-targeted M&A was at the lowest level since first half 2013 Europe-targeted M&A was up 22% from first half 2016 The value of global M&A transactions in 2016 decreased approximately 18% from 2015 s annual record high China outbound and US inbound volume both hit a record high 2016 withdrawn deal volume reached the highest level since 2008 Source: dealogic October 3,

6 Global trends Positive factors for steady M&A activity include: Companies continuing to seek synergistic transactions intended to complement organic growth Strong fundamentals Potential new pro-business policy changes in the US Continued low interest rates/available acquisition financing Increased stock prices Regulatory uncertainty and reform may hinder M&A activity: New US administration Brexit Increased scrutiny in China October 3,

7 Global trends 5000 Global M&A volume ($ billion) ,611 4, ,914 3,621 3, , ,723 2,766 2,660 2, , Source: dealogic October 3,

8 Top 10 global sectors Top ten target sectors ($ billion) Technology Utility & Energy Real Estate Healthcare Oil & Gas Chemicals Finance Leisure & Recreation Telecom Consumer Products Source: dealogic October 3,

9 Global M&A due diligence Complexity of multi-jurisdictional due diligence Local language considerations/local customs and norms to be considered Financial review multiple sets of books Differing regulatory standards Differing environmental standards Country specific statutes requiring disclosing/investigation Publicly available information varies Use of legal or financial intermediaries helpful October 3,

10 Significant international deal considerations Pensions Employment/works councils/unions Severance/termination/rehire of employees Transfer of business undertaking Customs/trade compliance October 3,

11 Global antitrust considerations Increased regulation catching more deals, even where local presence is minimal Newer antitrust regulators can be unpredictable; lack of transparency Over 100 countries have adopted merger control regimes Most jurisdictions are mandatory, very few (e.g., UK, Australia, New Zealand) are voluntary Significant cost and timing considerations Fines for non-compliance are increasing more fines for failure to notify more fines for gun jumping more fines for misleading information in an EU notification A robust filing analysis is important October 3,

12 Global antitrust considerations Fast pace of regulatory changes Country specific new developments: Germany New threshold intended to capture deals that despite the low turnover figures of the target company may have a significant impact on competition in the future o Intended to catch deals worth over EUR 400 million with substantial target German activity (even if previously not notifiable due to revenues less than EUR 5 million) COMESA (Common Market for Eastern and Southern Africa) Designed to be one-stop shop for African member states Continues to develop its practices and procedures October 3,

13 Global antitrust considerations European Union Brazil Considering introducing a transaction size test (in addition to its turnover test) and dropping the requirement to notify full function joint ventures where the parents reach the turnover thresholds but where the JV has no presence in the EEA Volume of internal documents requested by the commission appears to be increasing and the stage at which requests are made appears to be getting earlier Requires clearance prior to closing October 3,

14 CFIUS Committee on Foreign Investment in the United States (CFIUS) CFIUS reviews the national security implications of foreign investment in US businesses (inbound) CFIUS is a multi-agency committee under the Department of Treasury CFIUS has discretion to review voluntary filings Annual report to congress just issued regarding 2015 statistics 143 transactions notified to CFIUS in 2015 down from 147 in 2014 Heightened scrutiny 66 transactions went to investigation, up from 51 in 2014 Acquisitions involving substantial pools of potentially sensitive data of US persons subject to increasing national security considerations For the fourth consecutive year, CFIUS received more filings by Chinese buyers than any other country (29 transactions) October 3,

15 CFIUS CFIUS review process: Pre-filing consultation assess likelihood of clearance Initial 30 day review majority of transactions are approved in this phase Investigation period: 45 days Mitigation agreement to address national security concerns Decision by the president Very unusual to proceed to this stage On September 13, the president blocked a potential acquisition of a US semiconductor manufacturer by a Chinese state backed investor October 3,

16 Making the deal work Unsuccessful integration is the most common reason cited for failed merger/acquisition Integration limitations: Deal frenzy emphasis on deal completion Regulatory issues impede integration planning Lack of internal integration resources Merger integration is a common 10-K risk factor. October 3,

17 Post-acquisition integration Purchaser needs efficient integration of target group Cost savings Capture acquisition synergies Streamline structure Realign divisional structures Transfer employees/facilitate workforce reductions Elimination of duplicate entities Position group for sales of unwanted entities/assets October 3,

18 Critical success factors Speed Minimize disruption Minimize integration costs including tax costs Capture opportunities to improve overall structure Identifying interdependencies Good communication October 3,

19 Country level issues Typical integration transaction structures Merger, share sale or business (asset) sale Mergers and liquidations often more time consuming than asset sales Country level financial statements Timing of closing/transaction structure may necessitate preparation of local financial statements Valuations May be required depending on integration structure Identify if likely to require any third party input October 3,

20 Tax planning Taxation of integration transaction Mergers of duplicate entities Tax-free merger available? Preservation of tax attributes VAT/transfer taxes Transfer of going concern exemption Local tax incentives Repatriation Valuations October 3,

21 HR issues Identify key time constraints/delay risk at outset Understand limits on ability to plan pre-closing Redundancies When? In which entity? Seeking alternative employment; ability to relocate Selection: just pick the best? Practical alternatives Consultation Works councils/social plans/ewcs/employee forums/reps Risk of dispute/delay: powers of works councils/individual claims Communications: coordination and data protection issues Harmonization of terms & conditions October 3,

22 Post-acquisition integration pre-closing action items What should buyers be doing in advance of closing? Factor integration into due diligence plan Due diligence is best time to start gathering information and integration planning Credit agreements Entities will be moving within group Build restructuring/integration flexibility into credit agreements Assess works council position in each country Obtain labor advice on impact of pre- and post-closing communications of merger and workforce reductions on later works council discussions October 3,

23 Post-acquisition integration pre-closing action items Review major agreements to assess change of control/transfer issues Analyze buyer and target tax attributes begin tax planning Develop plan for integrating legal ownership of IP October 3,

24 Post-acquisition integration day 1 readiness Establish integration steering committee Consider what integration work can be done in advance of closing Develop integration rules of engagement to manage communication and information flow Develop global and country level integration plans Identify key corporate, labor and tax issues for each country Identify tax and other costs to integrate Develop timeline and local country legal step plans Implement local country plans Create eroom to manage integration process October 3,

25 Post-acquisition integration day 1 readiness Conform corporate governance: Fiscal year Name change Director and officer changes Get resignations at closing Typical surprises: Missed subsidiaries, representative offices, etc. Lost share certificates October 3,

26 Post-acquisition integration day 1 compliance issues Regulatory filings and approvals: Post-merger filings Central bank filings Corporate compliance issues: Foreign Corrupt Practices Act Trade restrictions, export controls and boycott laws Money laundering prohibitions US GAAP and revenue recognition Sarbanes-Oxley October 3,