On September 21, 2019, Cleary Gottlieb partners Ethan Klingsberg and Jim Langston, along with moderator Paul Washington, executive director of The Conference Board, Anu Aiyengar, Head of North American M&A at J.P. Morgan and Anthony Kim, Partner at Centerview Partners, discussed M&A risks for boards and management teams arising in connection with:
- internal forecasts
- the roles of insiders
- fundless, LP and lesser-known sponsors
The panel discussed how disclosure pressure from the Delaware courts and the SEC has led to heightened scrutiny of internal forecasts and some of the substantive missteps that boards, management teams and advisors have made when navigating the issues raised by this scrutiny in the context of sales of public companies. The panel reviewed best practices relating to the increased use of alternative forecast scenarios and of sensitivity analyses to support M&A sales processes and decision-making. In addition, the panel offered refined approaches, based on recent experiences, to handling multiple forecasts intended for different purposes, anticipating the staleness of forecasts, probability weighting of forecasts, and the pitfalls of trying to arrive at a single “best estimate” forecast amid macro and company-specific dynamics.
The panel then turned to a review of recent case law highlighting different aspects of the conduct of insiders in connection with sales of public companies and what is the current state of best practices for insiders—including independent directors, management, and significant stockholders. Additionally, the panel explored protocols for managing the rollover of insider equity in cash mergers and where some recent transactions have run into trouble. The panel then assessed the latest thinking on having “approval by a majority of the disinterested stockholders” as a closing condition in M&A transactions.
Finally, the panel explored the rise of LBOs where LPs, fundless sponsors and lesser known sponsors are playing outsized roles, the reasons for this trend, and the pressures that this trend puts on Revlon duties and on advisors. The panel reviewed the benefits that this trend offers for public companies seeking to tap the large amount of capital that is available to take companies private at premia, as well as the execution risks that come with this trend. The panelists offered tips and guidelines on how financial and legal advisors are adopting new practices to help minimize these execution risks, including novel side agreements and more extensive and nuanced diligence of the obligors making equity commitments.
A replay of the webcast is available here (please note that your browser may require you to run an Adobe plugin to access this content).