Autumn 2020
Thought Leadership in Transaction-Related Board Advisory Services
Editor for This Issue: Timothy J. Meinhart and Kevin M. Zanni
Transaction Planning Thought LeadershipThought Leadership Discussion:
How Solvency Opinions May Reduce the Risk of Fraudulent Transfer Exposure in Leveraged Transactions
Michael F. Holbein, Esq.
A constructive fraudulent transfer occurs where the transferor receives less than
“reasonably equivalent value” in exchange for the transfer and the transferor is either
(1) insolvent on the date of such transfer; (2) engaged in a business or transaction for
which any property remaining with the transferor has unreasonably small capital; or (3)
intended to incur, or believed it would incur, debts that would be beyond its ability to
repay as such debts matured. A constructive fraudulent transfer may be avoided under
the U.S. Bankruptcy Code and applicable state law. Leveraged transactions, in particular,
give rise to constructive fraudulent transfer risk. An independent, third-party solvency
analysis—prepared at the time of the leveraged transaction—can be useful in defending
against such a fraudulent transfer claim.
Financial Considerations for Boards and Trustees in ESOP Sponsor Company Sale
Transactions
Steven G. Schaffer, Esq., Kyle J. Wishing, and John C. Kirkland
Merger and acquisition (“M&A”) transactions are often highly anticipated and sometimes
highly controversial events for companies in both the public market and the private
market. Companies commit significant time and resources to sourcing and structuring
the appropriate deal. The presence of an employee stock ownership plan (“ESOP”) at the
target company adds a layer of complexity to the M&A transaction. As a fiduciary under
the Employee Retirement Income Security Act of 1974 (“ERISA”), the ESOP trustee has an
important role to perform with respect to reviewing a proposed transaction. This discussion
focuses on the roles of the sponsor company board and the ESOP trustee when a sponsor
company sale is being considered. This discussion also focuses on the role of the trustees’
financial adviser in reviewing the financial aspects of the proposed M&A transaction.
Best Practices Discussion
Disputes and Litigation in Merger and
Acquisition Transactions
Stockton De Laria and F. Dean Driskell III, CPA
Merger and acquisition (“M&A”) transactions are often complex, and such transactions
can result in a dispute between the buyer and the seller. Two of the more frequently
disputed components of M&A transactions involve (1) transaction price earnout
provisions and (2) post-closing purchase price adjustments. This discussion addresses
(1) the advantages and disadvantages of various M&A transaction structures, (2)
typical types of earnout provision and post-closing price adjustment disputes, and (3)
transaction structuring and transaction procedures to minimize the likelihood of M&A
transaction disputes and litigation.
The Roles of the Investment Banker and
the Valuation Analyst in M&A Transactions
and Litigation
Samuel S. Nicholls
Valuation analysts (“analysts”) are often retained to provide testifying expert services in
disputes related to merger and acquisition (“M&A”) transactions. Such analysts may also
provide transaction fairness opinions as part of the M&A deal process. This discussion
focuses on the roles of the investment banker and the valuation analyst—both during the
M&A transaction and after the M&A transaction. This discussion also considers flaws in the
M&A process and, particularly, in the transaction fairness opinion that can lead to posttransaction
shareholder litigation. Lastly, this discussion considers how various courts have
viewed the fairness of certain M&A transactions that suffered from a flawed process.
Financial Adviser Due Diligence Related to Financial Information Used in a Fairness
Opinion Analysis
Timothy J. Meinhart
Financial advisers prepare fairness opinions related to a variety of different transactions. An
often overlooked component of the fairness opinion analysis is the due diligence process that
financial advisers conduct with respect to the target company historical financial information
(“HFI”) and prospective financial information (“PFI”). It is only after performing sufficient
due diligence that the financial adviser can apply the appropriate methods and procedures
to opine on the fairness of a particular transaction. This discussion summarizes the typical
due diligence that a financial adviser conducts on the target company’s HFI and PFI when
the adviser renders a fairness opinion.
A Survey of Recent Judicial Decisions
Involving Fairness Opinions
Sean L. McGrane, Esq., and Brandon L. McFarland
Over the years, disclosures related to fairness opinions have become a focus of shareholder
claims against the target company, and the target company board, in connection with
a proposed merger or acquisition transaction. This discussion summarizes the regime
governing disclosures related to fairness opinions. In addition, this discussion identifies and
summarizes recent judicial decisions that address fairness opinion issues.
Recent Trends in Delaware Chancery Court Appraisal Rights Cases
Nathan P. Novak
There are many U.S. federal and state laws that are designed to protect the rights of
company shareholders—particularly noncontrolling shareholders (i.e., shareholders that
otherwise lack significant influence over company decisions). Dissenting shareholder
appraisal rights statutes provide protection to company shareholders in certain cases. These
statutes can be developed and enforced both federally and state-by-state, and are typically
designed to protect noncontrolling shareholders’ financial interests in the case of a company
change of control transaction. In recent years, the Delaware Court of Chancery (the
“Delaware Chancery Court”) has decided several shareholder appraisal rights cases. In these
decisions, certain trends have developed in terms of how the Delaware Chancery Court has
ruled on this often-controversial area of corporate law. This discussion provides an overview
of some of the more recent trends in valuation-focused appraisal rights opinions that have
been decided by the Delaware Chancery Court.
Litigation Insights from Ryan, a Shareholder Oppression Decision
Kevin M. Zanni
This discussion presents an insider perspective on the largest valuation-related judicial
decision in Nebraska state court history.1 This judicial decision is also considered to be
the second-largest forced buyout in U.S. history.2 This matter involved substantial value
opinion differences that pitted two well-known valuation firms against each other. In
Ryan, the two valuation firms basically applied the same methodology but had differences
of opinion related to (1) financial projections, (2) expected long-term growth rate
assumptions, (3) selection of a modified capital asset pricing model equity size-premium,
(4) selection of an unsystematic company risk premium, (5) the relevance of a failed
merger and acquisition sales process, (6) application and selection of guideline public
company pricing multiples, and (7) application of a tax pass-through entity valuation
adjustment. In the end, the court accepted one value conclusion in full, and rejected the
other value conclusion because it was found to be unreliable.
The Use of the Credit Shelter Trust in the Time of Portability
Andrew Brajcich, CPA
The credit shelter trust has been a widely used tax savings tool for estates that exceed the
exclusion amount. However, the use of credit shelter trusts has grown out of favor ever
since the U.S. Congress amended the Internal Revenue Code to allow for the portability of
a spouse’s unused exclusion amount. This discussion analyzes the continued use of a credit
shelter trust in conjunction with the unlimited marital deduction in order to achieve estate
tax savings for estates that hold appreciating assets.