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What are some creative M&A deal structures?

Andrew Sherman
Profile Picture of Andrew Sherman

Andrew Sherman is an M&A Partner at Jones Day. He focuses his practice on issues affecting business growth for companies at all stages, including developing strategies to leverage intellectual property and technology assets, as well as international corporate transactional and franchising matters.

He has served as a legal and strategic advisor to dozens of Fortune 500 companies and hundreds of emerging growth companies. He has represented U.S. and international clients from early stage, rapidly growing start-ups, to closely held franchisors and middle market companies, to multibillion dollar international conglomerates. He also counsels on issues such as franchising, licensing, joint ventures, strategic alliances, capital formation, distribution channels, technology development, and mergers and acquisitions.

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What are some creative or lesser known deal structures that present win-win opportunities for both buyers and sellers?


So there are a couple of things here. One deal structure that is starting to pop up is Davids buying Goliaths. When we think of M&A, we think of transactions involving companies smaller than us as acquisitions and transactions of our peers as mergers, but then there’s no term for a smaller company buying a bigger company. There are a few trends that support this David buying Goliath scenario. #1, there’s a boatload of cash out there, so small companies that might not be able to afford to buy the big company, may be able to get access to capital that wasn’t previously available. #2, there’s a fair number of divestitures going on where big companies are getting rid of operating divisions that small companies couldn’t have normally afforded, but suddenly can afford. I think you’re going to see that trend over the next couple of years.

The M&A process at the big company and private equity level is like the human digestive system. They sit down for a big meal and then the food sit on the stomach for a while and gets processed, driving value to the body parts that need it and then of course, there’s the visit to the bathroom. Every once in a while, you get into a visit to the bathroom cycle and you see a lot more spin offs and divestitures and private equity funds wanting to get liquidity out of investments they have made that haven’t quite worked out for them. Those are opportunities for some creative deal structures or lesser known deal structures for entrepreneurial small and mid sized buyers. The only thing that usually holds that up is whether or not there’s access to cash. Since we are in an era where there’s a lot of cash and the cost of borrowing is cheap with historically low interest rates, that could be a trend that’s going to last for a little while.

The second trend I would mention, as the baby boomers get older they would normally turn the company over to the next generation because they may have gotten it from their World War 2 generation. Those baby boomer’s children are now doctors, lawyers, dentists, engineers, and scientists. They don’t really want to come back to Ames, Iowa and take over the family business. You’re going to see more of these companies being transferred either by MBOs, management buyouts and/or ESOPs, employee stock ownership plans, because that next generation that would normally take over the business isn’t there or isn’t interested. Some of these companies are not going to be purchased by strategics or private equity funds. So I guess the last trend I’m seeing is a possible uptake in management buyouts or ESOP transactions due to aging baby boomers who don’t have a next generation of the family that wants to take over the business and where, for whatever reason, those companies are not private equity or strategic buyer ready yet.

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