Presenting a live 90-minute webinar with interactive Q&A M&A Transaction Consideration: Evaluating Cash, Stock, Seller Notes and Earnouts Weighing the Financing and Tax Benefits and Risks of Cash and Non-Cash Purchase Consideration THURSDAY, DECEMBER 4, 2014 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Christopher M. Flanagan, Partner, Edwards Wildman Palmer , Boston Mitchell Martin, Principal, McLean Group , McLean, Va. The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Transaction Currency M&A Transaction Considerations: Evaluating Cash, Stock, Seller Notes and Earnouts December 4, 2014
Table of Contents
S ECTION 1 Presenter Introduction 7
Presenter Introduction Company Overviews Edwards Wildman Palmer, LLP is a full-service, international law firm with approximately 500 lawyers in 16 offices in the US, Europe and Asia – The attorneys at Edwards Wildman focus on corporate and financial transactions, complex litigation, intellectual property, and insurance and reinsurance – Specialty areas of strength include venture capital and private equity – Edwards Wildman has over 125 years of experience, working with Fortune 500 companies, FTSE 250 clients and start-up companies The McLean Group is an independent, industry-focused investment bank with deep expertise in mergers and acquisitions, corporate finance, capital raises, and business valuations – Founded in 1997 – Headquartered in McLean, Virginia with additional offices in Chicago, Austin and Silicon Valley – Approximately 70 dedicated investment banking and valuation professionals – Dedicated industry groups bring extensive domain and transactional expertise to every client engagement – Largest valuation practice in the Mid-Atlantic Region, outside the Big 4 accounting firms 8
Presenter Introduction Speaker Backgrounds Mitchell Martin Christopher Flanagan Principal Partner mmartin@mcleanllc.com cflanagan@edwardswildman.com (703) 752-9009 (617) 239-0485 Mitchell Martin is co-head of both the firm’s M&A Practice as well as Christopher M. Flanagan is a partner in the Tax Department of Edwards Wildman’s Boston office. Mr. Flanagan's general corporate its Aerospace, Defense and Government Services industry group. Selected recent transactions include the sale of 3Phoenix to Ultra and partnership tax practice focuses on tax planning and analysis in Electronics, Twisted Pair to Motorola, Corbin Technology to Fulcrum, the transactional area. He has particular experience in representing the divestiture of RedBlack Communications from Ultralife, the public and private companies in taxable and tax-free acquisitions and leveraged recap of VETS, Inc, SMSi’s sale to Boeing, Signature divestitures of corporate subsidiaries and divisions, and in Government Solutions’ sale to Sotera, the acquisition of Point One reorganizations and restructurings. Mr. Flanagan also represents by FedCap, and many others. companies in the structuring and formation of major corporate joint ventures, limited liability companies, and large venture capital/private Mr. Martin is regularly quoted as an industry expert in the equity funds, as well as advising companies on the tax issues Washington Post, Washington Business Journal, Defense News, attendant to both public and private debt and equity offerings. Washington Technology and other industry publications. Chris also has extensive experience in the taxation of insurance Prior to joining the McLean Group, Mr. Martin held financial advisory companies and insurance products, and works extensively with the positions with leading investment banks focused on M&A for Insurance and Reinsurance Department on both transactions aerospace and defense companies. Previously, he was an Army involving the acquisition and divestiture of insurance companies and Captain and commanded an Infantry Company in the Middle East. the structuring of insurance related investments. Chris also has Mr. Martin is Airborne and Ranger qualified, and currently holds a experience in the creation and taxation of captive insurance Top Secret Security Clearance. arrangements, and has authored articles on the topic. Mr. Martin is an Honors Graduate of the United States Military Chris is also a former chair of the Tax Section of the Boston Bar Academy at West Point. He received his M.B.A. from the Sloan Association. In addition to his law degree, he has an LL.M in School of Management at the Massachusetts Institute of Technology Taxation. Chris has been recognized as a Leader in the field of Tax and his M.P.A. from the John F. Kennedy School of Government at Law by Chambers USA in each of the years 2007 through 2014. He Harvard University. He is licensed with FINRA as a Registered has also been listed in the Tax Law section of the Best Lawyers in General Securities Principal and FINOP (Series 7, 24, 28, 63, 79). America publication for the past two years. 9
S ECTION 2 Trends in Choice of Transaction Consideration 10
Trends in Choice of Transaction Consideration Shift Towards Contingent Payments Over the last several years we have witnessed a shift in transaction consideration from cash at close to more contingent payments A recent study found that two thirds of all deals contain a contingent compensation component representing 25% or more of the total valuation While 100% cash at close is generally preferred by sellers, there are disadvantages and reasons for exploring alternative consideration – Cash Advantages Upfront Payments (% of Total Valuation) • Simple and easily defined • Secure and not subject to valuation problems 13% • Best for quick and final closing of transactions 76% - 100% 33% – Cash Disadvantages 49 - 79% 20% • Buyer assumes all performance risk after deal closing 26% - 50% • Less favorable tax treatment than other forms of consideration 6% - 25% • Requires buyer liquidity and increases the need for financing 34% Source: Duff & Phelps PPA Survey 11
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