potential merger interview question
I recently had a phone screen and was asked what I thought to be an interesting question, and I was wondering if anyone here had anymore insight into it.
I was asked "what are some potential reasons a owner of a company might not be able to sell it to an interested party?"
I had never really thought of something like this before, but a few reasons I gave after thinking about it for a second were that the company no longer has strategic value to the interested party, for example if the other party was interested in buying the company to have access to its patents but the patents just expired, and that there might be conflicts on how the leadership of the company's would integrate after a merger, making the seller unwilling or unable to sell the company."
I would like to see if I was far off in my answer, but also interested to hear other reasons or problems. I thought it was a pretty interesting thing to think about in general. Any opinions?
Yeah, pretty far off. If the patents expired then the party would no longer be an interested party.
Think about reasons why an INTERESTED party might not be able to buy the business. Antitrust comes to mind. Some smaller companies in certain industries have specific agreements with top customers saying that in the event of a transaction, a customer (say Company B) has veto power over who buys the business. Hence, an interested party might not be able to purchase the business if it is a direct competitor to Company B.
Use the KISS method, always.
I think either I am misunderstanding what you are saying or vice versa. My point was that if the patents expired for company a then the party (company b) would no longer be interested in buying company a. Which would be a reason the owner of the company would not be able to sell it. Does it make more sense like that or am I missing something here?
Also, can you elaborate a bit on the KISS method?
I appreciate the insight on antitrust issues, thanks for that.
What he's saying is that the question is looking for a specific type of scenario where Company B can't buy company A - a scenario where Company B is interested, evaluates Company A, and then decides they'd like to make the acquisition, but other forces prevent it from doing so. In the patent expiration case, Company B would see that Company A's valuable patents are expiring, and thus would decide it does not want to acquire it. For this question you're looking for some kind of "friction" that prevents two willing parties from making a deal.
A few ideas:
-Antitrust idea mentioned earlier is great, this happens frequently
-Shareholder approval - some may think company is being undervalued and management is selling for less than its worth, think about Dell and how the acquisition process for Silver Lake dragged on a long time
-Financing difficulties: If buyer is paying cash, then non-issue. But in cases where financing is required to get a deal done, an environment where liquidity and debt issuance dries up like 2008-2009 would prevent a deal from getting done.
-Laws preventing foreign ownership: This is unlikely to come up often, but in certain industries like fishing and shipping, companies operating in the U.S. are required to have U.S. majority ownership, which would restrict foreign buyers from the list of potential acquirers
-Concerns about future litigation against the sale: If a company that is in potential financial distress sells a group of assets / subsidiary, bondholders who later end up underwater could claim the sale was fraudulent conveyance. This occurs when the company is in distress at the time of the traction or the transaction puts the company in distress and it can be argued that management sold assets for below their true value, lowering bondholder recoveries.
-Litigation or possibility of litigation against Company A, or other large unknown liabilities: Any uncertainty surrounding potential large liabilities, such as litigation, against the company would make an acquirer weary of taking on that risk even if they like the underlying business.
KISS = keep it simple
Great. Thanks for this. Cleared it up for me.
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