By John Hyde
An NAPL client on the West Coast is in "early stage" discussions with another print and graphics communications company about a possible strategic acquisition. Semantics about "acquisition" or "merger" are familiar terrain for these kind of exploratory talks, but both companies are "treading water", so the question of "who is buying who" is the 800-pound gorilla in the room.
The first introduction via phone went well, and the parties are planning to meet in person as a "second date". I've been asked to provide "talking points" to help the client prepare. Here are my suggestions for this situation:
"The most important outcome from this "Second Date" meeting is to gain better understanding of consolidation savings and revenue enhancements. This comes about through articulating a vision of "how could this work" from the point of view of operational consolidation. In this case, I am concerned that both sides will view the "synergy conceptualization" through the lens of "buy, sell, merge" rather than through the purely operational vantage point. Maybe some education about "reverse tuck in" and "merger of equals" would be helpful so that it is not assumed that the "tuck in" recipient is automatically the buyer, not the case."
"I would continue to stress the importance of personal chemistry and emphasis on objectives, not just outcomes. This is where [shareholder X] really can shine. I would advise [shareholder X] to express willingness to sell intangible assets as part of orderly liquidation but at the same time, let's consider a "merger" scenario in which both parties share in the economic viability of the consolidated entity and share in the risk of balance sheet combination. In a sale, the value of Acquirco is irrelevant; in a merger, the value of their company is highly relevant. Therefore, from the vantage point of X shareholders, since Acquirco is not in great shape itself, a merger allows for a potentially better outcome because both companies are hurting. Of course, an argument can be made against putting together two treading water co's."
"As to information, I would suggest that the parties consider the dialogue as "merger" talks, meaning, both sides should disclose same info to each other. This practice tends to reduce the risk of a fishing trip, as each side gets the same info from the other.""If we need to talk about this, please call me over the weekend."