Category: Mergers And Acquisitions

Mergers And Acquisitions: I have written about mergers and acquisitions, including reverse mergers, extensively in the past, but as both traditional mergers and acquisitions and reverse mergers are a large part of my practice, it is a topic worth revisiting and drilling down on regularly. In fact over the past year, the M&A market has been booming with activity. A question that often arises involves the obligations of the board of directors during the merger process…

Oct252016

Florida Broker-Dealer Registration Exemption For M&A Brokers

ABA Journal’s 10th Annual Blawg 100

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Following the SEC’s lead, effective July 1, 2016, Florida has passed a statutory exemption from the broker-dealer registration requirements for entities effecting securities transactions in connection with the sale of equity control in private operating businesses (“M&A Broker”). As discussed further below, the new Florida statute, together with the SEC M&A Broker exemption, may have paved the way for Florida residents to act as an M&A broker in reverse or forward merger transactions involving OTCQX-traded public companies without broker-dealer registration.

Florida has historically had stringent broker-dealer registration requirements in connection with the offer and sale of securities. Moreover, Florida does not always mirror the federal registration requirements or exemptions. For example, see my blog HERE detailing some state blue sky concerns when dealing with Florida, including the lack of an issuer exemption from the broker-dealer registration requirements for public offerings.

However, in a move helpful to merger and acquisition (M&A) transactions in the

Apr052016

Mergers And Acquisitions: Types Of Transactions

ABA Journal’s 10th Annual Blawg 100

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As merger and acquisition (M&A) transactions completed its most active year since the financial crisis, it is helpful to go back to basics. Activity has been prevalent in all market sectors, including large, mid and small cap and across all industries, including biotech, financial services, technology, consumer goods and services, food and beverage and healthcare, among others.

Although I’ve written about M&A transactions multiple times, this will be the first time I’ve given a broad overview of the forms that an M&A transaction can take.

Types of Mergers and Acquisitions

A merger or acquisition transaction is the combination of two companies into one resulting in either one corporate entity or a parent-holding and subsidiary company structure. Mergers can categorized by the competitive relationship between the parties and by the legal structure of the transaction. Related to competitive relationship, there are three types of mergers: horizontal, vertical and conglomerate. In a horizontal merger, one

Jan052016

SEC Guidance On Proxy Presentation Of Certain Matters In The Merger And Acquisition Context

ABA Journal’s 10th Annual Blawg 100

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In late October the SEC issued its first updated Staff Legal Bulletin on shareholder proposals in years – Staff Legal Bulletin No. 14H (“SLB 14H”). Please see my blog on SLB 14H HERE. On the same day the SEC published two new Compliance and Disclosure Interpretations (“C&DI”) related to the unbundling of matters presented for a vote to shareholders in merger and acquisition transactions. The new C&DI has in essence granted voting rights to target company shareholders, on acquiring company organizational documents, where none existed before and has in essence pre-empted state law on the issue.

Unbundling under Rule 14a-4(a)(3) in the M&A Context

Exchange Act Rule 14a-4 relates to the requirements for a proxy card general. Rule 14a-4(a) provides:

(a) The form of proxy:

(1) Shall indicate in bold-face type whether or not the proxy is solicited on behalf of the registrant’s board of directors or, if provided other

Nov102015

Mergers And Acquisitions; Appraisal Rights

ABA Journal’s 10th Annual Blawg 100

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Unless they are a party to the transaction itself, such as in the case of a share-for-share exchange agreement, shareholders of a company in a merger transaction generally have what is referred to as “dissenters” or “appraisal rights.”  An appraisal right is the statutory right by shareholders that dissent to a particular transaction, to receive the fair value of their stock ownership.  Generally such fair value may be determined in a judicial or court proceeding or by an independent valuation.  Appraisal rights and valuations are the subject of extensive litigation in merger and acquisition transactions.  As with all corporate law matters, the Delaware legislature and courts lead the way in setting standards and precedence.

Delaware Statutory Appraisal Rights

Although the details and appraisal rights process vary from state to state (often meaningfully), as with other state corporate law matters, Delaware is the leading statutory example and the Delaware Chancery Court is the leader

Oct202015

Mergers And Acquisitions – The Merger Transaction

ABA Journal’s 10th Annual Blawg 100

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Although I have written about document requirements in a merger transaction previously, with the recent booming M&A marketplace, it is worth revisiting.  This blog only addresses friendly negotiated transactions achieved through share exchange or merger agreements.  It does not address hostile takeovers.  

A merger transaction can be structured as a straight acquisition with the acquiring company remaining in control, a reverse merger or a reverse triangular merger.  In a reverse merger process, the target company shareholders exchange their shares for either new or existing shares of the public company so that at the end of the transaction, the shareholders of the target company own a majority of the acquiring public company and the target company has become a wholly owned subsidiary of the public company.  The public company assumes the operations of the target company.    

A reverse merger is often structured as a reverse triangular merger.  In that case, the acquiring company forms

Oct062015

Mergers And Acquisitions: Board of Director Responsibilities

ABA Journal’s 10th Annual Blawg 100

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I have written about mergers and acquisitions, including reverse mergers, extensively in the past, but as both traditional mergers and acquisitions and reverse mergers are a large part of my practice, it is a topic worth revisiting and drilling down on regularly.  In fact over the past year, the M&A market has been booming with activity.  A question that often arises involves the obligations of the board of directors during the merger process. 

Board of Directors’ Fiduciary Duties in the Merger Process

State corporate law generally provides that the business and affairs of a corporation shall be managed under the direction of its board of directors.  Members of the board of directors have a fiduciary relationship to the corporation, which requires that they act in the best interest of the corporation, as opposed to their own.  Generally a court will not second-guess directors’ decisions as long as the board has conducted an

Mar182014

Guide to Reverse Merger Transaction

What is a reverse merger?  What is the process?

A reverse merger is the most common alternative to an initial public offering (IPO) or direct public offering (DPO) for a company seeking to go public.  A “reverse merger” allows a privately held company to go public by acquiring a controlling interest in, and merging with, a public operating or public shell company.  The SEC defines a “shell company” as a publically traded company with (1) no or nominal operations and (2) either no or nominal assets or assets consisting solely of any amount of cash and cash equivalents.

In a reverse merger process, the private operating company shareholders exchange their shares of the private company for either new or existing shares of the public company so that

Nov052013

Mergers and Acquisitions; Merger Documents Outlined

An Outline Of the Transaction

The Confidentiality Agreement

Generally the first step in an M&A deal is executing a confidentiality agreement and letter of intent.  These documents can be combined or separate.  If the parties are exchanging information prior to reaching the letter of intent stage of a potential transaction, a confidentiality agreement should be executed first.

In addition to requiring that both parties keep information confidential, a confidentiality agreement sets forth important parameters on the use of information.  For instance, a reporting entity may have disclosure obligations in association with the initial negotiations for a transaction, which would need to be exempted from the confidentiality provisions.  Moreover, a confidentiality agreement may contain other provisions unrelated to confidentiality such as a prohibition against

Oct302013

Board of Directors Obligations as Applied to Mergers and Acquisitions

State corporate law generally provides that the business and affairs of a corporation shall be managed under the direction of its board of directors.  Members of the board of directors have a fiduciary relationship to the corporation, which requires that they act in the best interest of the corporation, as opposed to their own.  Generally a court will not second-guess directors’ decisions as long as the board has conducted an appropriate process in reaching its decision. This is referred to as the “business judgment rule.”  However, in certain instances, such as in a merger and acquisition transaction, where a board may have a conflict of interest (i.e., get the most money for the corporation and its shareholders vs. getting the most for themselves via either cash or job security), the board of directors’ actions face a higher level of scrutiny.  This is referred to as “enhanced scrutiny business judgment rule.”  The same standards apply to officers of a

Jan032013

The ABA Pushes To Allow For The Payment Of Finder’s Fees

In April of this year, the American Bar Association Private Placement Broker Task Force delivered to the SEC and published a recommendation for a limited federal exemption from SEC registration for securities intermediaries that would be able to assist in the private raise of capital for both private and public entities.  The Task Force previously published a lengthy recommendation and even drafted proposed rules, in June 2005, and has been advocating the rules since that time.  The full text of both the April 2012 submission and June 2005 report with proposed rules can be read on the SEC website.

The SEC’s Position and Current Rules on Finder’s Fees

The Securities and Exchange Commission (SEC) strictly prohibits the payments of commissions or other transaction based compensation to individuals or entities that assist in a capital raise, unless that entity is a licensed broker dealer.

Periodically, and most recently in April 2008, the SEC updates its Guide to Broker Dealer Registration explaining