Carve-Out Transactions: Strategies for Due …

1 The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10. Presenting a live 90-minute webinar with interactive Q&A Carve-Out transactions : Strategies for Due Diligence and Structuring the Deal Today s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific WEDNESDAY, JUNE 28, 2017 Jason C.

2 Breen, Partner, Goodwin, Los Angeles Charles J. Morton, Jr., Partner, Venable, Baltimore Rita-Anne O'Neill, Partner, Sullivan & Cromwell, Los Angeles Tips for Optimal Quality Sound Quality If you are listening via your computer speakers, please note that the quality of your sound will vary depending on the speed and quality of your internet connection. If the sound quality is not satisfactory, you may listen via the phone: dial 1-888-450-9970 and enter your PIN when prompted. Otherwise, please send us a chat or e-mail immediately so we can address the problem.

3 If you dialed in and have any difficulties during the call, press *0 for assistance. Viewing Quality To maximize your screen, press the F11 key on your keyboard. To exit full screen, press the F11 key again. FOR LIVE EVENT ONLY Continuing Education Credits In order for us to process your continuing education credit, you must confirm your participation in this webinar by completing and submitting the Attendance Affirmation/Evaluation after the webinar. A link to the Attendance Affirmation/Evaluation will be in the thank you email that you will receive immediately following the program.

4 For additional information about continuing education, call us at 1-800-926-7926 ext. 35. FOR LIVE EVENT ONLY Program Materials If you have not printed the conference materials for this program, please complete the following steps: Click on the ^ symbol next to Conference Materials in the middle of the left-hand column on your screen. Click on the tab labeled Handouts that appears, and there you will see a PDF of the slides for today's program. Double click on the PDF and a separate page will open. Print the slides by clicking on the printer icon.

5 FOR LIVE EVENT ONLY Carve-Out transactions : Strategies for Due Diligence and Structuring the Deal June 28, 2017 Strafford Web Seminar Rita-Anne O Neill Charles Morton Jason Breen Carve-Out transactions Latest Trends 6 What Is a Carve-Out Transaction? A Carve-Out transaction is a sale of a business line, division or portion of a larger company. By their nature, Carve-Out transactions combine many aspects of public company and private company M&A and also raise their own set of unique issues. Key Attribute of Carve-Out transactions : Seller remains an operating business once the transaction has been completed.

6 7 ABA Carve-Out Transaction Deal Points Study The M&A Market Trends Subcommittee of the Mergers & Acquisitions Committee of the American Bar Association s Business Law Section is in the process of a new Deal Points Study on Carve-Out transactions expected to be released by the end of 2017. The Deal Points Study includes analysis of approximately 120 Carve-Out sale transactions that were announced from January 1, 2015 through December 31, 2016. The Carve-Out transactions included in the Deal Points Study are public deals with transaction values in excess of $10 million where the ultimate parent of the Seller is a public company, the Seller was not in apparent financial distress at the time of the announcement of the transaction and the Seller did not retain any equity interest in the carved out business sold.

7 The Deal Points Study excludes agreements that expressly contemplate that the Seller will obtain stockholder approval prior to consummation of the transaction. Note that the data from the Deal Points Study referenced throughout this presentation is preliminary. Also note that the data from the Deal Points Study only covers public deals and the data may be different for private deals. 8 Carve-Out transactions Structure Carve-Out transactions can take the form of asset purchases in which the Seller identifies and sells or carves out specific assets; or the form of an equity purchase in which the Seller sells equity in one or more of its subsidiaries.

8 Carve-Out transactions can also combine the two structures, for example, when the Seller sells both assets and equity in subsidiaries, or when the Seller transfers assets in a pre-closing restructuring to a subsidiary and then sells that subsidiary to a Buyer. Even with a transaction structured as an equity purchase, it still may involve an asset sale in connection with a restructuring. Practitioners advising a Seller should discuss very early on in the process whether a pre-signing or a pre-closing restructuring, if any, is desirable.

9 Structure should also take into account input from tax advisors. 9 Carve-Out transactions Unique Legal and Business Considerations 10 Consideration Issue of valuation gaps may be amplified in a Carve-Out transaction. There may not be stand-alone financials relating to the carved out business. To bridge the valuation gap, the parties may agree to staged payments and/or earnouts. Earnouts often address specific concerns and risks of Buyer in assuming the carved out business. For example, milestones based on satisfying integration metrics, sales targets and/or regulatory approvals.

10 Deal consideration may include mix of stock and cash, which should be considered in the structuring of the transaction. Parties should consider the scope of the retained liabilities by Seller and post-closing recourse of Buyer against Seller in determining the deal value and the triggers for payment of the consideration. 11 Transferred Assets/Liabilities A key aspect of structuring a Carve-Out as an asset purchase or with an asset purchase component is identifying the specific assets to be transferred and the liabilities to be assumed.