When high-priced acquisitions hit the news, the transaction value gets most of the attention. But dig a little deeper and you'll see that the deal structure--how the price ultimately gets turned into cash--often matters more than the reported valuation.
* "Form of the transaction": "Transaction Form" describes what the buyer is paying for--sale of stock, sale of assets, a recapitalization, a merger, exclusive licenses, etc. Form is critical because it can have a major impact on the after-tax receipts to shareholders. For example, the sale of stock in a C corporation can net shareholders twice the after-tax cash than an equivalent transaction structured as a sale of assets.
* "Form of payment": It's easy to know the value of a cash payment, but what's the true value when the transaction consideration is paid in stock, options, earnouts, and the like? Is payment in the stock of a public company or a private one? If the stock is immediately tradable, is there enough volume and strength behind the stock price, or will the price take a nosedive? If payment is in the form of debt, what's the strength of the entity behind the debt? And if part of the price is in the form of an earnout, how much control over performance will the sellers have?
* Allocation: Sometimes, an acquiring company will allocate portions of the price it pays to various assets--for instance, patents, non-compete agreements, consulting agreements to key employees or shareholders, or technology licenses. Again, these allocations can have significant tax consequences to the seller.
* Timing: Finally, there's always the question of when the sellers receive their money--which may not be on the day of the closing. Some money may be tied up in escrow, or the seller may be required to achieve certain milestones to get fu^ll payment. Often, money is held back as a way to ensure that key people stay with the company after the deal closes, which may stretch out final payment for several years.
Mark Reed, senior vice president, Corum Group, 10500 NE Eighth St., Bellevue, Wash. 98004; 425/4558281. E-mail: markr@corumgroup.com.
Company/ Acquired by Price/Terms Revenues Multiple Description Wise Altiris $43,000,000 $19,700,000 2.18 Solutions (ATRS) Terms: $31.4MM in cash, rest in stock * enterprise application managment solutions CDC Information $33.300,000 $12,000,000 2.78 Solutions Holdings (IHI) Terms: 19.3MM in cash, rest in earout * software for life sciences industry PointBase DataMirror $3,500,000 $1,500,000 2.33 Corp. (DMCX) Terms: Cash * database management software Ki TietoEnator $87,000,000 $107,300,000 0.81 Consulting Corp. (TIE1V) Terms: Cash Solutions AB * IT services firm focused on telecom industry Amicas VitalWorks $60,000,000 $6,000,000 10.00 (VWKS) Terms: $30MM cash, $25MM earnout, $5MM in employment contracts * medical imaging software (PACS)
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