What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

Volume 5 —The Land Mines Strewn Throughout the Data Room

M&A transactions, like most transactions in life, involve a cost/benefit analysis.  Some cost/benefit analyses are relatively easy to perform.  For example, if I buy an energy efficient appliance, I can calculate the likely savings in energy costs over the useful life of the appliance (the benefit) and compare it with the acquisition cost of the appliance (the cost).  M&A transactions, of course, involve far more complex cost/benefit analyses.  But the key to any such analysis is the ability to identify and quantify the costs and benefits with some measure of confidence.  Every line of business has its own quirks and idiosyncrasies, and they need to be understood when evaluating the acquisition of a company that operates in that line.  More than most, the business of government contracting is replete with such quirks and idiosyncrasies, and they can have a dramatic effect on the “cost” side of the cost/benefit analysis.

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What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

Volume 4 – Key Issues in Government Contracts Due Diligence

This posting is the fourth in our ten-part series on unique issues that arise in connection with mergers and acquisitions involving government contractors and subcontractors.  Parts 1 through 3 focused on the structure of the transaction and the implications of that structure on the transfer of pending contracts and proposals.  This posting, Part 4, introduces some of the most important issues that potential buyers should consider and address during the due diligence and negotiation process.  The posting is not intended to be a detailed “due diligence checklist,” but rather a high level overview of certain key factors that are likely to impact the “go/no go” decision and the buyer’s valuation of the target company.

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What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

Volume 3—What Happens to Pending Proposals?

Thus far in this ten-part series, we have discussed whether and how existing contracts with the Government can be transferred to the buyer or surviving entity when an acquisition, merger, or consolidation occurs. Today, we leave the world of existing contracts and turn to bids and proposals that are pending when the deal closes.  What happens to those as-yet-unaccepted offers?  Is there anything you can do to enhance the likelihood that the Government will be willing to accept such offers notwithstanding the organizational change?  And, if you are in second place when the award is made to a “reorganized” offeror, are there possible protest grounds lurking in the deal that you could assert to obtain the award? Continue Reading

Eighth Circuit Reverses District Court for Ignoring Price-Impact Evidence That Rebutted the Fraud-on-the-Market Presumption and Defeated Class Certification

In IBEW Local 98 Pension Fund v. Best Buy Co., Inc., No. 14-3178 (8th Cir. Apr. 12, 2016), the United States Court of Appeals for the Eighth Circuit held, in a Rule 10b-5 securities fraud action, that the district court incorrectly analyzed the price-impact evidence submitted by defendants to rebut the fraud-on-the-market presumption of reliance that plaintiffs had invoked to satisfy Rule 23(b)(3)’s predominance requirement.  Two years ago, the U.S. Supreme Court, in Haliburton Co. v. Erica P. John Fund, Inc., 134 S.Ct. 2398, 2414-16 (2014) (Halliburton II), recognized a defendant’s right to rebut the presumption using price-impact evidence at the class-certification stage.  Based on Haliburton II, the majority panel determined that defendants had submitted “overwhelming” evidence that the alleged misstatement caused no stock price inflation.  The panel rejected plaintiffs’ theory that the misstatement could nevertheless have “maintained” the stock’s already-inflated price at the allegedly inflated level.  The decision importantly limits the fraud-on-the-market presumption to cases in which the alleged misstatement is the independent cause of new or additional stock price inflation. Continue Reading

In Wake of Panama Papers Scandal Obama Calls for Stricter Bank Regulations, Tax Rules

In a news conference today President Obama addressed rules and proposed regulations announced Thursday intended to help the U.S. fight tax evasion and other crimes connected to anonymous offshore companies and accounts.  The announcements come after a month of intense review by the administration following the first release of the so-called Panama Papers, millions of documents stolen or leaked from Panamanian law firm Mossack, Fonseca.  The papers have revealed a who’s who of international politicians, business leaders, sports figures and celebrities involved with financial transactions accomplished through anonymous shell corporations.

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What You Need to Know About Mergers and Acquisitions Involving Government Contractors and Their Suppliers

Volume 2 – Obtaining Consent to Assign a Government Contract

This posting is the second in a ten-part series on unique issues that arise in the acquisition and disposition of a company that performs government contracts or subcontracts.  Part 1 focused on the types of deal structures that are subject to the anti-assignment statutes, and therefore require Government consent.  We explained that consent is not required for stock purchases, is required for asset sales, and may be required for other types of transactions, including mergers.  This posting, Part 2, addresses the consent process, including the who, what, when, and how of obtaining a novation agreement.  It also includes practical tips, based on our experience, for navigating the novation process efficiently and successfully. Continue Reading

Second Circuit Narrowly Applies Supreme Court’s Decision in Omnicare

In In re Sanofi Securities Litigation, No. 15-588-cv, 2016 U.S. App. LEXIS 4107 (2d Cir. Mar. 4, 2016), the United States Court of Appeals for the Second Circuit affirmed the dismissal of class action complaints alleging that the defendants had made materially false or misleading statements or omissions in their registration statement.  The Court examined the impact of the United States Supreme Court’s intervening decision in Omnicare, Inc. v. Laborers District Council Construction Industry Pension Fund, 135 S.Ct. 1318 (2015) (previously covered here), which held that a statement of opinion which omits material facts about the issuer’s knowledge may be misleading if the omitted facts conflict with what a reasonable investor would infer from reading the statement in context.  The Second Circuit in Sanofi held that statements of opinion were not misleading under Omnicare where they omitted a fact that did not conflict with what a reasonable investor would take from the statement.  The court further noted that statements of opinion are not misleading simply because they omit facts cutting the other way.  Continue Reading

Delaware Court of Chancery Increases Scrutiny on Disclosure-Only M&A Class Action Settlements

As recently as 2014, nearly 95% of all mergers of public companies valued at $100 million or more triggered stockholder class action litigation. Historically, a large number of merger-related stockholder litigation settled solely on the basis of supplemental proxy disclosures coupled with the payment of the plaintiff’s attorneys’ fees.  Such disclosure-based settlements have been criticized for providing little real benefit to stockholders and amounting to no more than a “deal tax” in favor of plaintiff’s lawyers, while at the same time threatening the loss of potentially valuable stockholder claims as a result of an overly broad release of defendants.  In In re Trulia Stockholder Litigation, 2016 Del. Ch. LEXIS 8 (Del. Ch. Jan. 22, 2016), the Delaware Court of Chancery (Bouchard C.) confirmed that the Court will be “increasingly vigilant in scrutinizing the ‘give’ and the ‘get’ of [disclosure based] settlements to ensure that they are genuinely fair and reasonable to the absent class members.” Continue Reading

REGULATORS, QUANT UP! New Rules from FINRA, SEC and CFTC Target Automated Algorithmic Trading

On February 11, 2016, FINRA filed a proposed rule with the SEC that would require individuals who “design, develop or significantly modify algorithmic trading strategies” (or “ATS”) as well as individuals responsible for the “day-to-day supervision or direction of the development process,” to pass a qualification exam and register with FINRA as securities traders. During the comment period, FINRA clarified that the rule would not apply to every person who touches or is otherwise involved in the design of a trading system, but that it would be up to each firm to determine who is primarily responsible for the design of the ATS system.  The rule defines ATS as “any program that generates and routes (or sends for routing) orders (and order-related messages, such as cancellations) in securities on an automated basis” and identified eight typical programs that it would consider an ATS.  (FINRA Reg. Notice 15-06.)  The rule was prompted by FINRA’s concern that programmers be properly educated in securities regulations in order to avoid inaccurate orders, inadequate risk management controls, and other problematic conduct.  Commentators criticized the proposal as having a “potential chilling effect” by “discouraging well-qualified developers from participating in the design, development or modification of algorithmic trading strategies, and even from affiliating with FINRA member firms.”   Continue Reading

Higher Filing Thresholds for HSR Act Premerger Notifications and Interlocking Directorates Announced

1. Higher Thresholds For HSR Filings

On January 21, 2016, the Federal Trade Commission announced revised, higher thresholds for premerger filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The filing thresholds are revised annually, based on the change in gross national product and will be effective thirty days after publication in the Federal Register. Publication is expected within one week, so the new thresholds will likely become effective in late February 2016. Acquisitions that have not closed by the effective date will be subject to the new thresholds. Continue Reading

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