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Moderator
David Marcus
Senior writer
The Deal LLC
Keith P. Radtke
Partner
Faegre Baker Daniels LLP
Steve Soderling
Principal
Tonka Bay Equity Partners
LLC
Eric Nicholson
Managing director
Greene, Holcomb & Fisher LLC
• (
U.S. M&A Market Summary
(12 Months ended May 31, 2012)
Total #
of Deals
% of
Total
Agg. Equity
Value ($ Bil)
% of
Total
Avg.
P/E
$1 Billion+
$500 Million - $999.9 Million
$250 Million - $499.9 Million
$100 Million - $249.9 Million
$50 Million - $99.9 Million
$25 Million - $49.9 Million
$10 Million - $24.9 Million
Under $10 Million
Undisclosed
166
168
247
351
297
369
406
737
6,920
1.7%
1.7%
2.6%
3.6%
3.1%
3.8%
4.2%
7.6%
71.6%
$578.4
$116.9
$84.7
$55.9
$21.0
$13.0
$6.8
$2.5
N/A
65.8%
13.3%
9.6%
6.4%
2.4%
1.5%
0.8%
0.3%
N/A
27.2x
25.0x
23.8x
27.2x
26.9x
22.4x
16.9x
16.7x
N/A
Total
9,661
100.0%
$879.2
100.0%
24.6x
Deal Size
Source: Mergerstat
Global Midmarket M&A by Sector
(for 1Q 2012)
Consumer Staples
4.5%
Telecom
Media &
2.2%
Entertainment
4.7%
Government
Agencies
0.3%
Real Estate
14.2%
Retail
4.9%
Healthcare
5.6%
Energy & Power
13.6%
Consumer Products
& Services
5.9%
Materials
12.2%
High Technology
9.4%
Industrials
11.2%
Source: Thomson First Quarter 2012 Middle Market M&A Review
Financials
11.3%
Strategic Buyers
S&P 500 Aggregate Cash Balance and Average P/E Multiple
$2,000
30.0x
$1,744
$1,758
$1,743
26.0x
$1,702
$1,685
Cash ($ in billions)
$1,647
$1,589
$1,600
$1,499
$1,501
$1,569
22.0x
$1,519
$1,400
18.0x
$1,292
$1,291
$1,200
14.0x
$1,000
10.0x
1Q09
2Q09
3Q09
4Q09
1Q10
2Q10
3Q10
Aggregate Cash (in billions)
Source: CapitalIQ
4Q10
1Q11
2Q11
Average LTM P/E Multiple
3Q11
4Q11
1Q12
Average LTM P/E Multiple
$1,800
Private Equity Overhang
(dollars in billions)
$700.0
$576
$600.0
$530
$500.0
$561
$477
$463
$456
$432
$400.0
$300.0
$200.0
$100.0
$0.0
2006
Source: PitchBook Inc.
2007
2008
2009
2010
2011
2012
May YTD
Lender Support
6.0x
Debt to Ebitda for Leveraged Transactions Ebitda under $50M)
5.3x
5.0x
5.0x
4.4x
4.0x
3.9x
3.6x
0.6x
3.5x
0.2x
4.1x
4.4x
1.7x
4.2x
0.4x
3.4x
1.0x
4.1x
0.6x
0.3x
3.9x
3.4x
4.2x
0.5x
1.1x
2.0x
3.0x
0.7x
0.5x
3.0x
3.3x
0.6x
5.0x
0.2x
4.4x
4.8x
4.6x
3.8x
3.3x
3.1x
3.2x
2008
2009
2010
3.5x
2.4x
1.0x
0.0x
2000
2001
2002
2003
2004
2005
2006
2007
Green: Senior Debt; Red: Sub Debt
Source:
Senior Debt
Sub Debt
2011
1Q12
Key deal terms: High-quality companies
o Shorter exclusivity periods (30-45 days typical).
o Indemnification caps lower than before (5%-10% of enterprise
value).
o Sellers offering an escrow, but with the escrow being the sole
source of indemnification for all claims other than fraud.
o Survival periods (on representations and the escrow) trending
toward 12 months or possibly shorter if the first full audit will
be completed before then.
Key deal terms: Nonhigh-quality companies
o Exclusivity periods are in a range that provides the buyer the opportunity
to conduct full due diligence, ranging from 45-60+ days.
o Indemnification caps in the range of 10%-15%, with some up to 20% or
more of enterprise value.
o Escrows continue to be prevalent, with the escrow matching the size of
the cap or a percentage of the cap (if the cap is on the higher percentage
end of the spectrum).
o Survival periods (on representations and the escrow) trending toward 1524 months.
Confidentiality agreements
Case Study: Martin Marietta Materials vs. Vulcan Materials
o Provisions in a confidentiality agreement limiting the use of “Evaluation
Material” to evaluating a “business combination transaction between” the
parties prohibited the use of such information in connection with a hostile
takeover bid.
o A provision permitting the disclosure of transaction information that is “legally
required” to be disclosed did not apply because it was not the result of an
external legal demand (for example, subpoena). According to the court, the
disclosure in this case (for example, in securities law filings) resulted from a
voluntary action by Martin Marietta.
Case Study: RAA Management vs. Savage Sports Holdings
o Certain disclaimers and waivers in a confidentiality agreement
were effective to protect the sellers against claims made for
fraudulent misrepresentation during the due diligence
process.
Key takeaways
o The specific wording of confidentiality agreements matters (a lot).
o It’s important to focus on restrictions on the “use” of confidential information.
o Don’t just use a typical “business” confidentiality agreement in the acquisition
context.
o Be sure that the form of confidentiality agreement that you (or your
investment banker) use has been reviewed by legal counsel before utilizing it
in your next sale or acquisition process.
Dealflow and financing markets
Tax changes
What to expect
oIf Congress doesn’t take action by Dec. 31, many tax rates will revert back to
rates in effect before the Bush tax cuts.
oLong-term capital gains rates would generally increase from 15%-20%.
oQualified dividend tax rates would generally increase from 15%-39.6% (for
the highest rate).
oFor many taxpayers, long-term capital gains and qualified dividends would
also be subject to an additional 3.8% Medicare tax.
oThere is much speculation as to whether the potential tax changes will fuel
third- and fourth-quarter M&A activity.
Midmarket uncertainty
Audience Q&A
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