How Jilted Targets Survive (And Thrive) When A Deal Crumbles

Saturday, July 12, 2008

Avital Louria Hahn, Abstracted from CFO magazine, http://www.cfo.com

Abstracted from: Picking Up The Pieces
CFO - April 2008, Pgs. 37-39

Cold feet blues.
In the wake of the 2007 credit crunch, many companies on the brink of becoming acquired have been abandoned by skittish acquirors with drained coffers. According to Thomson Financial, private equity buyers have backed out on some $55 billion worth of acquisitions of public companies since the credit crunch began in July 2007. Companies left in the lurch include well-known names such as student lender Sallie Mae, equipment rental company United Rentals, E-Z Pass creator Affiliated Computer Services, audio equipment manufacturer Harman International, and 3Com, reports Avital Louria Hahn. After deals fall through, executives are left to navigate the debris: falling stock prices, hefty legal fees, a loss of face in the market, legal wrangling with the former suitor, and getting back on track.

Surviving the aftermath.
With credit so difficult to obtain, abandoned companies that once would have had several potential acquirors to pick up the slack find themselves without viable bidders. Most must figure out how to forge ahead on their own. Initially, this may involve reestablishing or strengthening ties with shareholders, employees, equity analysts, and rating agencies. As the dust settles, replacing key executives, securing capital, and executing a new growth plan will take center stage. The key to rebounding from a broken deal, the author suggests, is keeping management focused during the sale process and minimizing the distraction of the deal. United Rentals limited the number of staff involved in the negotiations to a minimum and operated in a business-as-usual manner. Affiliated Computer Services stayed on track by keeping the buyout contained within management circles and engaging the managing directors and operating units only as the need arose.

Thriving without a buyer.
Not surprisingly, many jilted companies sue their former buyers, seeking financing, equity investments, or breakup fees. Because such lawsuits can be expensive and time-consuming, private equity firms are willing to negotiate such compensation. Harman, which saw its $8 billion acquisition by a private equity buyer fall through, received a $400 million equity investment in exchange for dropping its $100 million lawsuit. Withdrawing its lawsuit and demand for a $900 million breakup fee got Sallie Mae backing from its erstwhile acquiror for a $30 billion financing package. Companies also have the opportunity to reevaluate themselves and map a new path to growth. Harman’s restructuring plan, for example, involves cutting costs, expanding globally, consolidating offices, and even adding a partner from the private equity firm to its board. Affiliated Computer plans to acquire companies and penetrate foreign markets, while United Rentals is moving forward with cost cuts, increased efficiency, and growth through acquisition.

Abstracted from CFO
published by CFO Publishing Corp.
253 Summer Street, Boston, MA 02210.

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