Mergers & Acquisitions: Current Trends and Issues
Life Science M&A Market Overview
Current M&A market conditions have been characterized by rapid change and extreme volatility. Oracle Capital gives strategic insight by examining the multiple factors which are impacting the broader market, in addition to, specifically examining those factors affecting the life science M&A market. The topics discussed will include:
Trending analysis of current deal multiples, thus yielding valuable insight into your current and future company value.
How the weakening economy has impacted transaction financing. The role of cash in the M&A environment and the future of transaction financing is examined.
How current market conditions and the need to supplement product pipelines have created favorable conditions for the emergence of the strategic buyer.
The lingering affects of the “credit crunch” on the M&A markets.
Special Purpose Acquisition Corporations (“SPACS”)
SPACs are investment vehicles that allow public investors to invest in areas sought by private equity firms. SPACs are shell or blank-check companies that have no operations but that go public with the intention of merging with or acquiring a company with the proceeds of an initial public offering (“IPO”). Analysts speculate that the SPAC market will continue to rise through 2012. This financial instrument is explained in depth and the positives and negatives issues surrounding its utilization and its future outlook are examined.
Private Investment in Public Equity (“PIPEs”)
A PIPE involves the selling of publicly traded shares to private investors. The shares are almost always offered through an offering registered with the SEC and are sold at a slight discount to the public market price. PIPEs provide an opportunity for investors to acquire a sizeable position without having to chase a rising stock price caused by their own investment. With over 1,900 PIPEs performed in 2007 producing over $69 billion in proceeds, the utilization of PIPEs is gaining momentum. This section gives in depth insight into this tool and examines current issues and trends surrounding its use.
Fairness Opinions
Oracle Capital examines the controversy surrounding the “conflict of interest” when fairness opinions are issued. The new SEC Rule 2290 is explained and how it addresses “conflict of interest” issues regarding fairness opinions. New SEC mandated procedures and mandated disclosure requirements are described and analyzed.
Fair Value Accounting and Implementation of New Standards
Overview of Fair Value Accounting
In today’s volatile financial market, people (whether buying or selling) want to know what an asset is worth today. The FASB concluded fair value is the most relevant measure for financial instruments because it provides users with more clarity than historical cost accounting.
SFAS 157/820, effective November 15, 2007, provided a single definition of fair value, established a framework for how fair value should be measured for GAAP, and also expanded the disclosures required about fair value measurements. The statement was implemented to increase consistency and comparability in fair value measurements and provided users of financial statements with better financial information about the extent to which fair value is utilized to measure recognized assets and liabilities.
In the recent credit crunch, fair value accounting has been criticized largely by financial institutions and investors who believe fair value provides a more realistic view for assets that have a readily made market, but when there is no established market, or the market disappears, fair value accounting is not worth the earnings volatility it may cause since some of the accounting write downs that have recently occurred are temporary and are not “real” losses. Those in favor of fair value accounting state volatility is a basic component of life, and the transparency of fair value accounting allows users of financial statements to see what is really happening in a particular business, industry, or financial market as a whole, and believe the market will not make a full recovery therefore a portion of the write downs are not temporary. Once the market does begin to recover, the financial institutions will see the flip side of fair value accounting and will probably not have as many arguments when they begin to write up their assets.
Future of Fair Value Accounting
Many accountants believe that in the future, the FASB and the LASB will make GAAP and IFRS accounting practices compatible as soon as possible and will coordinate their programs so that once compatibility is achieved, it can be maintained. It is important to note that compatibility in the standards does not mean they will be identical, but that there are not significant differences as we have seen in the past in the two sets of standards.
SFAS 141(R)/BV ASC 805
The FASB issued Statement no. 141(R)/BV ASC 805 in December 2007, effective December 2008, which changes the financial statement reporting requirements for business combinations. In this section the major impacts that will affect the planning, execution, accounting, and disclosure of M&A transactions are examined and explained.