1、2006 Foley&Lardner LLP富力律师事务所富力律师事务所Detroit Chinese Business Detroit Chinese Business Association Seminar Association Seminar“Growing a Business By Acquisitions and Joint Ventures”系列讲座之三系列讲座之三:企业兼并与合营企业兼并与合营 April 5,20062006 Foley&Lardner LLP2About Foley&Lardner LLPnFoley&Lardner is a national law f
2、irm 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 firms2006 Foley&Lardner LLP3About Foley&Lardner LLPnFoley&Lardner is the only national law firm in
3、 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 bankruptcy specialists,including in
4、 Chapter 11 cases2006 Foley&Lardner LLP4Backgrounds of Foley SpeakersnSteve HilfingerDetroit Office Managing Partner;Co-Leader of Foley Automotive Industry Team19 years of M&A DoogalPartner,Detroit Office10 years of M&A nLinda JiAssociate,Boston Office8 years of M&A Foley&Lardner LLP5DCBA Seminar Se
5、riesnPart 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 Acquisitions and Joint Ventures”Acquisitions and Joint Ventures”(Tonight)(
6、Tonight)2006 Foley&Lardner LLP6Format 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 will be available for a more informal Q&A followi
7、ng our presentation or you may contact us directly2006 Foley&Lardner LLP7First: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 Venture”(JV)A combination of t
8、wo 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)2006 Foley&Lardner LLP8What Are Strategic Reasons for an Acquisition or JV?n
9、Access 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 customers2006 Foley&Lardner LLP9Wh
10、at Are Strategic Reasons 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 mis
11、takes of“learning by doing”Training and cross-pollination of ideas2006 Foley&Lardner LLP10What 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”c
12、ompanies are valued higher“Organic”growth rate of business may be slow or may have slowed Note:Acquisition/JV accounting differs 2006 Foley&Lardner LLP11Is Your Company Prepared to Undertake Acquisition or JV?nDo you have management resources and talent,including in cross-border transactions and man
13、aging foreign operations?nDo you have a fully developed business plan 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?2006 Foley&Lardner LLP12What Steps To Prepare?nFirs
14、t,make sure your existing business operations are solid(acquisitions and JVs are a major time 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 ban
15、kers,attorneys,accountants and others2006 Foley&Lardner LLP13How to Identify an Acquisition Target or JV PartnernTalk 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
16、for companies whose strengths are your weaknesses,and vice versanNetwork to learn more(e.g.DCBA events)2006 Foley&Lardner LLP14Acquisition vs.Joint Venture nAdvantages of AcquisitionControl over company and operationsEasier to administer post-closing100%share of profits and opportunitynDisadvantages
17、 of AcquisitionMore significant capital investmentMay be riskier/harder to integrateMay divert management attention2006 Foley&Lardner LLP15Acquisition vs.Joint Venture nAdvantages of Joint VentureKnowledge and resources of partnerLess capital investmentShared risk in new marketsnDisadvantages of Joi
18、nt VentureHarder to administer/governance issuesShared profits and opportunityOften are not successful and may be difficult to unwind2006 Foley&Lardner LLP16Sample Acquisition TransactionnUS On-Line Retailer Acquires Chinese On-Line RetailerDistributed books,music,videos and DVDsLargest U.S.on-line
19、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 acquired Chinese retailerThe U.S.company decided to do an acquisition rather than develop from the ground up be
20、cause 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.retailer already had the knowledge and experience in the industry but needed the local management team and loca
21、l expertise with respect to Chinese distribution issues2006 Foley&Lardner LLP17Sample Joint Venture TransactionnJapanese Automaker Enters into JV with Indian Manufacturer of Mopeds to Manufacture Motorcycles Prior to Joint Venture,there were three local manufactures of motorcycles in India,who were
22、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 and technology;the Indian company was in charge of manufacturing and marketing The JV wa
23、s 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 right method because both parties needed the knowledge and resources of the other party in
24、order to manufacture and distribute motorcycles in the Indian market2006 Foley&Lardner LLP18Overview of Merger and Acquisition Climate in U.S.nGenerally in the U.S.,current merger and acquisition market is strong for sellersMerger and acquisition activity is very strong and has rebounded from 2001-2
25、003 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 financing)nEquity markets have improvednBank financing is still re
26、latively cheapnPrivate equity firms have lots of cash to invest2006 Foley&Lardner LLP19Overview 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 market”Automotive suppliers who are depend
27、ent 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 opportunities for buyers,including Chines
28、e buyers2006 Foley&Lardner LLP20Confidentiality 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 consider:What ite
29、ms are excluded?Length of confidentiality agreementGoverning law and jurisdiction2006 Foley&Lardner LLP21Due DiligencenOften begins after Confidentiality Agreement is signednUsually done in three phasesInitial due diligencenBasic financial informationnMay be in an Offering MemorandumSecond stage due
30、 diligencenMay 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 contacts2006 Foley&Lardner LLP22Due Diligence(continued)nWho is involved in due diligence?Businesspeopl
31、e at buyer companyAccountants and/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
32、and encumbrances on assetsOthers(depending on industry)2006 Foley&Lardner LLP23Letters 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”w
33、here the seller agrees not to negotiate with any other party for 30-90 daysnLetters of intent are not mandatory;may move directly to purchase agreement2006 Foley&Lardner LLP24Ways To Acquire A BusinessnTypes of TransactionsAsset PurchaseStock Purchase(including Mergers)nGenerally,in an asset purchas
34、e the buyer acquires only the assets it wants and assumes only the liabilities it agrees to assumenGenerally,with a stock purchase the buyer acquires all of the assets and liabilities of the company it is purchasing2006 Foley&Lardner LLP25Successor Liability IssuesnEven in asset purchase,a buyer can
35、 be subject to liabilities to third parties that it did not agree to assume(including unknown liabilities)nThis is sometimes known as“successor liability”nExamples of successor liabilityProduct Liability Environmental LiabilitiesPension/Employment LiabilitiesnThese risks are addressed and managed by
36、 the buyer in the Asset Purchase Agreement2006 Foley&Lardner LLP26Types of Documents UsednAsset or Stock Purchase AgreementnNoncompete AgreementsnEmployment and Consulting AgreementsnFinancing DocumentsnLicense AgreementsnTransition Services AgreementnOther closing documents2006 Foley&Lardner LLP27G
37、overnment 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 require no governmental approvalsnIn addition,generally there is a relatively free flow of capital into and out of the U.S.to facilitate M&A transact
38、ions(subject to tax considerations)2006 Foley&Lardner LLP28Governmental Regulation of M&A Transactions in U.S.nCertain transactions require approval or notification of one or more governmental entitiesnExamples:Hart-Scott-Rodino(antitrust)Foreign Investment and Export Controls(Exon-Florio,Department
39、 of Defense rules)Investment Reporting(U.S.Commerce Department)U.S.,State and Local Tax Filings2006 Foley&Lardner LLP29Hart-Scott-Rodino nThis statute is designed to give the U.S.government advance notice of acquisitions that may raise antitrust concernsnFiling with Department of Justice or Federal
40、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 transaction can be consummated;usually expires without any action by U.S.government2006 Foley&Lardner LL
41、P30Foreign 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 controls restrict the export of certain sensitive technology;export licenses may b
42、e required nAlso,if customers of acquired business are in certain“banned”countries(Cuba,Iran,Sudan,etc.),additional governmental scrutiny and export license requirements may apply2006 Foley&Lardner LLP31Exon-Florio FilingsnAcquisition of U.S.business by foreign buyer subject to review for possible t
43、hreats 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 the United States(CFIUS),an interdepartmental agenc
44、y 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 file exposes buyer to possible future order of divestiture if U.S.government later finds
45、threat to national security exists2006 Foley&Lardner LLP32Exon-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 of 30 daysnFul
46、l 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 Business,etc.)
47、nFor the most part,however,the CFIUS process is not a significant barrier to foreign investment in the U.S.2006 Foley&Lardner LLP33Department of Defense Regulations/IssuesnDepartment of Defense Industrial Security RegulationsnRegulations control access to information concerning sensitive U.S.Defense
48、 contracts 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 proceed2006 Foley&Lardner LLP34Certain Other Governmental RegulationsnInvestment ReportingFile BE-13 Form with U
49、.S.Commerce DepartmentAdditional reporting requirementsThere is no substantive review of transactionnU.S.,State and Local Tax FilingsStructure transaction to minimize tax obligationsPotential taxation of earnings when repatriated2006 Foley&Lardner LLP35Special Considerations Purchases in Bankruptcyn
50、Purchases of assets of companies that are in bankruptcy are supervised 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 combin
