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Consortium bids raise many complex legal, economic and strategic issues beyond those typically dealt with in M&A transactions. Consortium bidders and their advisors need to focus carefully on their role in the bidding process to avoid delays and mistakes that can cost them the deal. Many of these risks can be mitigated through advance planning. This article highlights 10 issues that frequently arise in connection with consortium bids.
Consortium bids are deals in which two or more unaffiliated entities either provide equity financing or divide the business being acquired. These transactions can range in size from the giant private equity club deals of 2006 and 2007 in which the target remained intact to much smaller deals in which a target is broken up and sold to multiple strategic buyers.
Consortium bids raise many complex legal, economic and strategic issues beyond those typically dealt with in M&A transactions. Consortium bidders and their advisors need to focus carefully on their role in the bidding process to avoid delays and mistakes that can cost them the deal. Sellers and their advisors need to focus carefully on the substantive and execution risks associated with having multiple buyers involved in a transaction. Many of these risks can be mitigated through advance planning. This article highlights 10 issues that frequently arise in connection with consortium bids.
1. Strategic Considerations for Sellers
Sellers need to consider whether permitting bidders to team together and form a consortium will ultimately result in a higher or lower price. On the one hand, allowing bidders who otherwise would not be likely to bid on a stand-alone basis to form a group should result in a more competitive bidding process and a higher price. On the other hand, consortium bids can also reduce the number of potential bidders by grouping bidders together, which in turn can make an auction less competitive. In fact, there have been governmental investigations and lawsuits over whether certain club deals were an illegal attempt to collude and drive down the prices of acquisitions.
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This article is part of the "Speed Reading" series, in which the authors highlight practical tips and recurring issues in M&A transactions and corporate governance. They are: M&A Transactions and Antitrust Risk, 2012 Emerging Issues 6642; Special Committees in Going Private Transactions, 2012 Emerging Issues 6205; Foreign Corrupt Practices Act in M&A Transactions, 2012 Emerging Issues 6206; Designating Directors: Issues and Implications, 2011 Emerging Issues 5788; Charter and Bylaw Issues, 2010 Emerging Issues 5372; Top 10 Due Diligence Issues in M&A deals, 2010 Emerging Issues 5124; Issues in a Public Company Merger Agreement, 2010 Emerging Issues 4883.