May 18, 2009
Contingent Value Rights and the new M&A
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.
May 18, 2009 | Permalink
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CVRs are likely to be the subject of intense dispute in the future, especially when valuations jump back up and sellers get remorseful about having paid what turns out to be too much (or at least more than they wanted).
What's your take on the warrants the federal government received from the bail outs? If banks repay the money now, what value should they have?
Cheers and glad to hear your thoughts again...
Posted by: Felipe | May 19, 2009 8:13:34 AM