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Jenner & Block Partners Thaddeus J. Malik and John F. Cox recently discussed trends in the public and private deal markets at the West Legalworks Midwestern M&A Forum in Chicago.
In the public deals arena, directors and advisors are under heightened scrutiny when a company is being sold to a private equity firm, according to a panel moderated by Mr. Malik, who also served as co-chair of the day-long forum.
This scrutiny stems from a recent case in the Delaware Chancery Court in which shareholders of a software company challenged the board’s diligence when it marketed the company exclusively to private equity firms, said the panelists. In Re Netsmart, Inc. Shareholders Litigation.
“Netsmart is clearly an example of how not to complete a transaction,” said Charles Mulaney, Jr., of Skadden, Arps, Slate, Meagher & Flom LLP. If you’re going to accept and seek only one bidder, the court is saying you must have credible reasons and be able to show that it was a bona fide, informed decision, he said.
Panelists in a session on private deals focused on how today’s “seller’s market” is impacting strategic buyers -- companies that buy based on “synergistic” or strategic relationships that add to the company’s long-term business plans -- as well as financial buyers.
“Strategic buyers often have the advantage of better knowing their industry and competitors,” said Mr. Cox. Based on synergies of which they are aware, they know what those companies can pay, and they can factor that into their price rather than guessing what other bids will be, as a less informed buyer might do, he said.
Because the market is so favorable for sellers, buyers are also doing a more up-front, detailed analysis in terms of their capacity to do a deal, their overall ability to profit, and their ability to integrate the company or profit from an exit, Mr. Cox added.