1、About Foley&Lardner LLPnFoley&Lardner is a national law firm with 17 offices across the United States,and offices in Tokyo and BrusselsnNearly 1,000 attorneys worldwidenWe have affiliations with law firms in nearly every country,including several Chinese law firmsAbout Foley&Lardner LLPnFoley&Lardne
2、r is the only national law firm in the United States with a substantial office in Detroit(45 lawyers)nOur Detroit Office attorneys specialize in assisting automotive companies with all of their legal needs,including mergers and acquisitions and joint venture transactionsnOur attorneys include many b
3、ankruptcy specialists,including in Chapter 11 casesBackgrounds of Foley SpeakersnSteve HilfingerDetroit Office Managing Partner;Co-Leader of Foley Automotive Industry Team19 years of M&A experience/313.234.7123nDaljit DoogalPartner,Detroit Office10 years of M&A experience/313.234.7122 nLinda JiAssoc
4、iate,Boston Office8 years of M&A experience/617.342.4063DCBA Seminar SeriesnPart 1:“How to Start a Business From Eureka Moment to Operating Company”(May 25,2005)nPart 2:“How to Raise the Right Money for a Growing Business”(July 21,2005)nPart 3:“Growing a Business by Part 3:“Growing a Business by Acq
5、uisitions and Joint Ventures”Acquisitions and Joint Ventures”(Tonight)(Tonight)Format for Tonights SeminarnWe will each cover a portion of the presentation this eveningnQuestions,in English or Chinese,are welcome as we go along;we will also have a“Q&A”session at the end of our presentationnAlso,we w
6、ill be available for a more informal Q&A following our presentation or you may contact us directlyFirst:Some Definitionsn“Acquisition”An acquisition of all or substantially all of the assets or stock of a businessMay be a stock purchase,asset purchase,merger or other similar transactionn“Joint Ventu
7、re”(JV)A combination of two or more entities formed for the purpose of achieving a business purposeMay be a limited liability company,a corporation,a partnership or other entityOften have a stated period of duration(e.g.until a project is completed)What Are Strategic Reasons for an Acquisition or JV
8、?nAccess to Geographic Markets Establishing a“toehold”in a marketFaster alternative than a“greenfield”locationnAccess to CustomersMany customer relationships take years to develop;this may accelerateOften acquisitions or JVs are at the request or encouragement of key customersWhat Are Strategic Reas
9、ons for an Acquisition or JV?nAccess to TechnologyStrong R&D functions/capability(patents)Alternative to licensing agreementsNote:restrictions on technology exportnAccess to ManagementStrong management team may be in placeLearning about market and customers without risks and mistakes of“learning by
10、doing”Training and cross-pollination of ideasWhat Are Strategic Reasons for an Acquisition or JV?nAccess to Supply ChainCompanies with strong purchasing functionAvoid risks inherent in developing supply chain“from the ground up”nAccelerate Growth“Growth”companies are valued higher“Organic”growth rat
11、e of business may be slow or may have slowed Note:Acquisition/JV accounting differs Is Your Company Prepared to Undertake Acquisition or JV?nDo you have management resources and talent,including in cross-border transactions and managing foreign operations?nDo you have a fully developed business plan
12、 that includes the acquisition or JV and integration of related business?nDo you have the support of key constituents such as customers,suppliers,banks,government and shareholders?What Steps To Prepare?nFirst,make sure your existing business operations are solid(acquisitions and JVs are a major time
13、 commitment/distraction)nCarefully develop a business plannStudy all aspects of the market,and consult with others for their experiences and opinionsnHire professionals to assist you,including investment bankers,attorneys,accountants and othersHow to Identify an Acquisition Target or JV PartnernTalk
14、 to customers and suppliersnTalk to your professionals,who are expert in identifying“buy side”opportunities(e.g.investment bankers and attorneys)nLook for cultural compatibilitynLook for companies whose strengths are your weaknesses,and vice versanNetwork to learn more(e.g.DCBA events)Acquisition vs
15、.Joint Venture nAdvantages of AcquisitionControl over company and operationsEasier to administer post-closing100%share of profits and opportunitynDisadvantages of AcquisitionMore significant capital investmentMay be riskier/harder to integrateMay divert management attentionAcquisition vs.Joint Ventu
16、re nAdvantages of Joint VentureKnowledge and resources of partnerLess capital investmentShared risk in new marketsnDisadvantages of Joint VentureHarder to administer/governance issuesShared profits and opportunityOften are not successful and may be difficult to unwindSample Acquisition TransactionnU
17、S On-Line Retailer Acquires Chinese On-Line RetailerDistributed books,music,videos and DVDsLargest U.S.on-line retailer wanted to move into the Chinese market,but because of the cultural differences they needed an existing management team and an established company U.S.on-line retailer successfully
18、acquired Chinese retailerThe U.S.company decided to do an acquisition rather than develop from the ground up because of the distribution challenges in the Chinese market(the target company already had an efficient distribution system in place)Note:An acquisition was the right method because the U.S.
19、retailer already had the knowledge and experience in the industry but needed the local management team and local expertise with respect to Chinese distribution issuesSample Joint Venture TransactionnJapanese Automaker Enters into JV with Indian Manufacturer of Mopeds to Manufacture Motorcycles Prior
20、 to Joint Venture,there were three local manufactures of motorcycles in India,who were all using old technology The Indian company wanted to team up with a world-wide leader in technology to help gain a competitive advantage over the three local manufacturers The Japanese automaker provided design a
21、nd technology;the Indian company was in charge of manufacturing and marketing The JV was set for a term of 10 years and was very successful but at the end of the term,the Japanese automaker decided not to renew and began manufacturing motorcycles on its own in India Note:A Joint Venture was the righ
22、t method because both parties needed the knowledge and resources of the other party in order to manufacture and distribute motorcycles in the Indian marketOverview of Merger and Acquisition Climate in U.S.nGenerally in the U.S.,current merger and acquisition market is strong for sellersMerger and ac
23、quisition activity is very strong and has rebounded from 2001-2003 time periodIn many sectors,companies are being sold at substantial valuations,expressed as a multiple of EBITDA(Earnings Before Interest,Taxes,Depreciation and Amortization)Availability of financing is strong(both debt and equity fin
24、ancing)nEquity markets have improvednBank financing is still relatively cheapnPrivate equity firms have lots of cash to investOverview of Automotive Merger and Acquisition Climate in U.S.nMerger and acquisition climate in the automotive industry is not as favorable for sellersIs more of a“buyers mar
25、ket”Automotive suppliers who are dependent upon“Detroit 3”are under great financial distressEBITDA multiples are lower(in the range of 4-5x)nMany automotive bankruptcies(Chapter 11):Delphi,Collins&Aikman,Tower Automotive,Meridian,Intermet,JL French,Dana others?nThis financial distress creates M&A op
26、portunities for buyers,including Chinese buyersConfidentiality AgreementsnDescription:one or both parties agree to keep certain information confidentialnOften one of the first documents signed in an acquisition or JV transactionnMay include“nonsolicitation”provisions regarding employeesnIssues to co
27、nsider:What items are excluded?Length of confidentiality agreementGoverning law and jurisdictionDue DiligencenOften begins after Confidentiality Agreement is signednUsually done in three phasesInitial due diligencenBasic financial informationnMay be in an Offering MemorandumSecond stage due diligenc
28、enMay precede or follow a Letter of IntentnMore in depth and lengthy(more expensive)Final due diligencenMost sensitive information left until the endnPricing and cost information;customer contactsDue Diligence(continued)nWho is involved in due diligence?Businesspeople at buyer companyAccountants and
29、/or investment bankersAttorneysSometimes other specialists(e.g.environmental)nSignificant due diligence issuesEnvironmentalContracts and customer/supplier relationshipsPension and employee benefits(including retirees)Product liability and warrantyOwnership of assets and encumbrances on assetsOthers(
30、depending on industry)Letters of IntentnOften are used in acquisition or JV transactions;sometimes called“MOUs”nTypically a non-binding summary of all of the principal terms,including price and closing conditionsnOften include an“exclusivity”where the seller agrees not to negotiate with any other pa
31、rty for 30-90 daysnLetters of intent are not mandatory;may move directly to purchase agreementWays To Acquire A BusinessnTypes of TransactionsAsset PurchaseStock Purchase(including Mergers)nGenerally,in an asset purchase the buyer acquires only the assets it wants and assumes only the liabilities it
32、 agrees to assumenGenerally,with a stock purchase the buyer acquires all of the assets and liabilities of the company it is purchasingSuccessor Liability IssuesnEven in asset purchase,a buyer can be subject to liabilities to third parties that it did not agree to assume(including unknown liabilities
33、)nThis is sometimes known as“successor liability”nExamples of successor liabilityProduct Liability Environmental LiabilitiesPension/Employment LiabilitiesnThese risks are addressed and managed by the buyer in the Asset Purchase AgreementTypes of Documents UsednAsset or Stock Purchase AgreementnNonco
34、mpete AgreementsnEmployment and Consulting AgreementsnFinancing DocumentsnLicense AgreementsnTransition Services AgreementnOther closing documentsGovernment Regulation of M&A Transactions in U.S.nGenerally,M&A transactions in the U.S.are privately negotiated,often not publicly disclosed and often re
35、quire no governmental approvalsnIn addition,generally there is a relatively free flow of capital into and out of the U.S.to facilitate M&A transactions(subject to tax considerations)Governmental Regulation of M&A Transactions in U.S.nCertain transactions require approval or notification of one or mo
36、re governmental entitiesnExamples:Hart-Scott-Rodino(antitrust)Foreign Investment and Export Controls(Exon-Florio,Department of Defense rules)Investment Reporting(U.S.Commerce Department)U.S.,State and Local Tax FilingsHart-Scott-Rodino nThis statute is designed to give the U.S.government advance not
37、ice of acquisitions that may raise antitrust concernsnFiling with Department of Justice or Federal Trade Commission(including payment of filing fee)for certain transactions in excess of$56.7 million,depending on the“size of the parties”nGenerally,a 30-day waiting period(can be shortened)before trans
38、action can be consummated;usually expires without any action by U.S.governmentForeign Investment and Export Controls-GenerallynM&A transactions involving sensitive technology or national security may be reviewed by U.S.governmentnExon-Florio(1988)is applicable U.S.law nIn addition,U.S.export control
39、s restrict the export of certain sensitive technology;export licenses may be required nAlso,if customers of acquired business are in certain“banned”countries(Cuba,Iran,Sudan,etc.),additional governmental scrutiny and export license requirements may applyExon-Florio FilingsnAcquisition of U.S.busines
40、s by foreign buyer subject to review for possible threats to U.S.national security as a result of foreign ownership of U.S.businessnFiling is optional but if there is ANY possible concern about a national security risk,filing is recommendednFilings administered by Committee on Foreign Investment in
41、the United States(CFIUS),an interdepartmental agency chaired by the U.S.Department of Treasury nCFIUS is required to investigate where the acquirer is controlled by or acting for a foreign government and the acquisition could affect national securitynFailure to buyer to possible future order of dive
42、stiture if U.S.government later finds threat to national security existsExon-Florio Filings(continued)nCFIUS and the President have 90 days total to review the filing,investigate as necessary,and object to transactionnIn most cases,no investigation is recommended and transaction proceeds at the end
43、of 30 daysnFull scale investigations are unusual(only 30+notifications subjected to investigation and only one rejected;some withdrawn but most restructured to include restrictions on operations)nInvestigations can become political issues(viz.,Dubai-U.S.Ports transaction,CNOOC-Unocal,Lenovo-IBMs PC
44、Business,etc.)nFor the most part,however,the CFIUS process is not a significant barrier to foreign investment in the U.S.Department of Defense Regulations/IssuesnDepartment of Defense Industrial Security RegulationsnRegulations control access to information concerning sensitive U.S.Defense contracts
45、 and subcontractsnPrograms subject to Foreign Ownership,Control,and Influence(FOCI)regulations can make it difficult to complete transaction,or transaction may not be allowed to proceedCertain Other Governmental RegulationsnInvestment Reporting Form with U.S.Commerce DepartmentAdditional reporting r
46、equirementsThere is no substantive review of transactionnU.S.,State and Local Tax FilingsStructure transaction to minimize tax obligationsPotential taxation of earnings when repatriatedSpecial Considerations Purchases in BankruptcynPurchases of assets of companies that are in bankruptcy are supervis
47、ed by the U.S.Bankruptcy CourtnSales of assets are generally subject to“Section 363”of the Bankruptcy CodeRequires“auction”of assetsThere is often a lead bidder(“stalking horse”)Lead bidder given certain protections(fees)Best combination of price and terms(including certainty of closing)will“win”the
48、 bidBuyer takes assets“free and clear”of all liensObservations/Suggestions for Chinese Buyers/JV PartnersnIt is possible to acquire companies in the U.S.with little or no governmental oversight or publicitynChinese buyers need to overcome perception that they are less likely to be able to close a tr
49、ansactionGet any required governmental and bank approvals in advanceBe prepared to deposit cash or a Letter of Credit confirmed or issued by a U.S.bankUse experienced U.S.professionals(investment bankers,attorneys,etc.)to enhance credibilitynBegin due diligence early and consider logistics(e.g.visa
50、issues)well in advanceKeys to Success and Mistakes To Avoid in M&A and JV TransactionsnKeys to SuccessKnow what kind of investment you want to makeKnow your capabilities/limitations Understand and be sensitive to cultural differencesFind the right team to assist youDo a lot of planning so you can mo
