Monday, May 18, 2009
That the credit crisis has created a challenging deal environment is an understatement. Firms that might otherwise have been in the market as a acquirers are unable to secure the credit necessary to make deals happen. Potential sellers are sitting on very low valuations and, rightfully, are not willing to sell. Enter contingent value rights. A recent Reuters piece noted the increasing use of contingent value rights as a way to help cross the divide between lack of financing and the valuation problem (here). In theory, contingent value rights, like earnouts, are elegant solutions to these problems, but in practice at least they can also be the source of more than a little bit of legal hassle. One wonders how transactions with CVRs that have been structured in these bad times will play out over time. I'll keep my eye out and will report back to be sure.