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Advantages of ‘Date-Certain M&A Process over Standard M&A’

Every venture capital investor hopes that all his investment will succeed. The reality is, however, that a large percentage of venture investments eventually are shut down. 

In the extreme they end in bankruptcy or assignment to creditors. The majority falls into the category of the “living dead.” Such companies are not complete failures, but their prospects do not justify continued investment, yet they are rarely shut down quickly.

Once reality has been recognized, most investors engage investment bankers to sell their investment off through prevailing M&A processes. Unfortunately, seldom with good results.

REASON #1

The main reason for that sad result is a fundamental misunderstanding of buyer psychology. In general, buyers act quickly and pay the highest price only by force of competitive pressure. 

Potential buyers of the highest probability are those already familiar with the company for sale, such as competitors, existing investors customers and vendors. Once a sales process starts the seller is very much a diminishing asset. Both financially and organizationally.  Unless compelled to act, potential buyers simply start to draw out the process, submit a low-ball offer when the seller runs out of cash, or try to pick up key employees and customers at no cost. 

REASON #2

The second reason is usually a misunderstanding of the psychology and methods of investment bankers.

Most investment bankers do best at selling “hot” companies. Companies whose value is perceived by buyers to be increasing quickly over time, and where there are multiple bidders.

They tend to be more motivated and work harder on such cases because transaction sizes –and resulting commissions– are larger and surrounding publicity can bring in new assignments, among others. They also tend to be more effective in maximizing value in such situations by using time to their advantage, pitting buyers against each other and setting very high expectations. 

In a situation where time is not your friend, the actions of standard investment banking practices often make a bad situation much worse. Such actions include assigning less experience B-Teams to smaller transaction size cases, “playing out the process” which works against the seller, and pitting multiple players against each other which can drive away potential buyers who often know far more about the seller than does the banker.

THE GERBSMAN PARTNERS ‘DATE-CERTAIN’ M&A PROCESS

The most effective solution in situations where time is not on your side is a Date-Certain Merger and Acquisition Process

Under this proprietary process, the company’s board of directors hires a crisis management/private investment banking firm (‘advisor’) to wind down business operations in an orderly fashion and to maximize the value of their intellectual properties and tangible assets. The Advisor works closely with board and corporate management to:

Focus on Control, Preservation and Forecasting of CASH

Develop a Strategy/Action Plan and Presentation to Maximize Value of Assets.

Plans to include Sales Materials, Due Diligence access. a list of all possible Interested Buyers for Intellectual Properties and Assets and Identify and Retain Key Employees on a go-forward basis.

Stabilize and provide Leadership, Motivation and Moral to all Employees.

Communicate with the Board of Directors, Senior Management, Senior Lender, Creditors, Vendors and all other Stakeholders in Interest.

THE PROCESS:

The company attorney prepares a simple “As-Is/Where –Is” asset sale documents. This document is very important and includes a “No-Reps or Warrantee” Agreement, as the board, officers and investors typically do not want any additional exposure on a deal. 

The advisor then follows up systematically with ALL potentially interested parties and coordinates their interactions with company personnel, including on-site visits. 

Typical terms for a Date-Certain M&A asset sale exclude representations and warranties and include a sales date –typically four to six weeks – from the point of readying sales materials for distribution, a refundable CASH deposit in the range of $200,000, a strong preference for cash consideration and with the ability to close a deal in seven business days. 

Date-Certain M&A terms can be varied to suit needs unique to given situations. For instance, the board may choose not to accept any bids, or to allow re-bids if there are multiple competitive bids, and/or allow early bids. 

The typical workflow timeline from advisor hiring to transaction close and receipt of consideration is four to six weeks. Such timelines may be extended as circumstances warrant. Upon receipt of considerations, the restructuring/insolvency attorney then distributes funds to creditors and shareholders (if there is sufficient consideration to satisfy creditors), and takes all needed steps to wind down the remaining corporate shell. Typically in coordination with the CFO.

PROCESS ADVANTAGES:

Speed:   – The entire Date-Certain M&A Process can typically be concluded in 4 to 6 Weeks. Creditors and investors receive their money quickly. A negative PR impact on investors and board members related to a drawn out process is eliminated. Where required, such timelines can be reduced to as little as two to three weeks, however severely compressing the process often impacts the final value received during asset auction.

Reduced Cash Requirements:  – Owing to the Date-Certain M&A process’ compressed turn-around time, there is a significantly reduced need for any additional investor cash to support the company during the process.

Maximized Value:  – A quick and effective process during wind-down mode minimizes strain and rapid asset depreciation and thereby preserves enterprise value. The fact that an auction will occur on a certain date typically brings truly interested and qualified parties to the table. In our considerable experience, this process strongly aids in maximizing the final value received. 

Cost:  – Advisory fees consist of a retainer and a performance fee, which is a percentage of the sales proceeds.

Control:  – At all time during the process, the board of directors retains complete control. For instance, it can modify the auction terms, or discontinue the auction at any point, thereby preserving all options for as long as possible.

Public Relations:  – As the entire sales process is private, there is no public disclosure. Once closed, the transaction can be portrayed as a sale of the company with all terms kept confidential. Accordingly investors can list the company in their portfolios as sold vs. having gone out of business.

A Clean Exit:  – Upon closing of the auction, considerations received are distributed and the advisor, under the leadership of the insolvency counsel, then takes all remaining steps to effect an orderly shut-down of the remaining corporate entity.

About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in underperforming, undercapitalized and undervalued companies and their intellectual properties. Since 2001, Gerbsman Partners has successfully maximized the values of 112 companies in a wide and diverse spectrum of industries, ranging from technology, life science, medical device, digital marketing, consumer to cyber security, to name only a few.

Since inception in 1980, Gerbsman Partners has successfully restructured/terminated over $810 million of real estate executory contracts and equipment lease/sub-debt obligations, and has been involved in over $2.3 billion of financings, restructuring and M&A transactions.

Gerbsman Partners has offices and strategic alliances  in San Francisco, Orange County CA, Boston, New York, Washington  DC, Mc Lean VA,  Europe and Israel.

The Shipping Container Industry Has Gamed Out What the Coronavirus May Do. Take a Seat.

Container Ship/Wiki Media Commons

Wall Street seems to be filled with Nancy Boys, swells, head-cases and drama queens. With every whiff of a problem, they sell off to beat a possible rush – thus creating a rush. There are very few people around like those who tried to blow the whistle in “The Big Short,” for example.

With the Left and their buddies in the media hoping for a crash in the market to douse President Trump’s unrivaled economic prosperity leading up to the election, you can’t really trust the mainstream media to tell you the truth. They almost always over-inflate the importance of everything – especially if it could be twisted to make Trump look bad.

With Jim Acosta telling you the story, could you hope to get a fair treatment of the president and the coronavirus?

Is there a legitimate fear of an existential threat to our country – and others – by it? Could our economy do a full belly flop?

The economy is dynamic. Where a slowdown occurs in one place, the counterweight hurry-up occurs in another. President Trump has talked about executing a plan to get U.S. manufacturers to make face masks to make up for the world shortage, for example.

But there is a lag time.

Assuming the coronavirus is around awhile, one industry, the crucial shipping container industry, gamed out what is likely to happen.

It ain’t pretty.

We get an extraordinary amount of products in shipping containers. You see containers on docks, stretched for miles on trains and hanging from mechanized cranes on tracks as they’re loaded onto huge “container” ships.

In his piece called “Coronavirus container impact to spread far beyond blank sailings,” Lars Jensen, CEO of Sea-Intelligence Consulting, outlines several dominoes that are happening or about to happen in this crucial industry. Though he says the shipping container industry has proven resilient, there’s the potential for much mischief-making:

However, what we are seeing now is the impact of a much larger systemic risk. Blocking a large number of vital nodes in the system for all players at the same time threatens to create a disproportionately large impact, lingering longer than usual. The last time we saw an event with systemic impact was more than a decade ago during the financial crisis. Not even an event such as the sudden bankruptcy of Hanjin Shipping, at the time the seventh-largest carrier worldwide, nor the 2017 cyberattack on Maersk Line, which disrupted operations at the world’s largest carrier for two weeks, had such an impact.

Here are his projected dominoes:

  1. Chinese manufacturing facilities didn’t open after Chinese New Year. A lag followed by a lag which “created massive shortfall in Chinese exports and, therefore, a drop in container demand.”
  2. Sailings were canceled, which caused “staggering” demand shortfall for containers.
  3.  “Blank sailings” lead to more blank sailings back to Asia creating 3 – 10 weeks’ more lag time.
  4. Pre-Chinese New Year peak of delivered cargo results in excess containers building up in places “such as Europe and North America.” Repatriating containers takes time and money.
  5. “Backhauls to Asia will drive up backhaul rates.”
  6. There will be a “surge in demand for containers” but getting containers back takes time. See Domino number 4.
  7. Need to order new containers
  8. Value of all containers will drop as a result of Domino 7.
  9. Headhaul rates will increase. Headhaul is “leg of the route that has the highest volume.” The route back is “back haul.”
  10. Refrigerated containers will continue to stack up in Chinese ports.
  11. That will trigger “congestion surcharges”
  12. Refrigerated containers will be diverted to other Asian ports “creating congestion challenges – and new tranches of dominoes – all their own.
  13. This is will cause temporary equipment shortages.
  14. Refrigerated transport rates will increase.

Now imagine the cost of all that stuff that’s either still stuck inside those containers or will be stuck inside those containers or hasn’t yet received a container in which to be shipped. The cost of whatever those widgets are will go up.

What kind of stuff is transported inside these containers?

  1. Food
  2. Forest Products
  3. Grains
  4. Metal
  5. Construction materials
  6. Iron and steel products
  7. Cars and trucks and parts
  8. Chemicals
  9. Ore
  10. Textiles

Jensen says, “In the best case, the coronavirus outbreak is contained quickly. If so, the dominoes outlined above will continue to fall, but the duration of each one will be relatively short.”

If anything, President Trump has done more to highlight the need for more manufacturing in the United States than offshore. He’s the one who made an issue out of U.S.-made steel, for example, as a national security issue. He’s dismissed as a jingoistic know-nothing for it, but he’s been proven right over and over, as the coronavirus has shown.

Yom HaShoah 2021 / יוֹם הַשּׁוֹאָה 5781

Yom HaShoah (Holocaust Memorial Day) for Hebrew Year 5781 began on  and ends at nightfall on .

Yom HaZikaron laShoah ve-laG’vurah (יום הזיכרון לשואה ולגבורה; “Holocaust and Heroism Remembrance Day”), known colloquially in Israel and abroad as Yom HaShoah (יום השואה) and in English as Holocaust Remembrance Day, or Holocaust Day, is observed as Israel’s day of commemoration for the approximately six million Jews and five million others who perished in the Holocaust as a result of the actions carried out by Nazi Germany and its accessories, and for the Jewish resistance in that period. In Israel, it is a national memorial day and public holiday. It was inaugurated on 1953, anchored by a law signed by the Prime Minister of Israel David Ben-Gurion and the President of Israel Yitzhak Ben-Zvi. It is held on the 27th of Nisan (April/May), unless the 27th would be adjacent to Shabbat, in which case the date is shifted by a day.


Terminating/Restructuring Prohibitive Real Estate, License, Payables & Contingent Liabilities

Gerbsman Partners has been involved with numerous national and international equity sponsors, senior/junior lenders, investment banks and equipment lessors in the restructuring or termination of various balance sheet issues for their technology, life science, medical device, cyber security, solar and cleantech portfolio companies. 

These companies were not necessarily in crisis, but had cash (in some cases significant cash reserves) and/or investor groups that were about to provide additional funding. In order to stabilize their Go-Forward-Plan and maximize cash resources for future growth, there were specific needs to address Balance Sheet and Contingent Liability issues as soon as possible. 

Some of these areas where Gerbsman Partners has assisted, these companies have been in the process of termination, restructuring and/or reduction of:

Prohibitive Executory Real Estate Leases, Computer and Hardware-related Leases and Senior/Sub-debt Obligations

            Gerbsman Partners was the “innovator” in creating strategies to terminate or restructure prohibitive real estate leases and senior and sub-debt obligations.  To date, we have terminated or restructured $810 million of such obligations for private and public companies, and which has allowed them to return to financial viability. 

Accounts/Trade Payable Obligations

            Companies in a crisis, turnaround or restructuring situation typically have account and trade payable obligations that become prohibitive for the viability of the company on a go-forward-basis. Gerbsman Partners has successfully negotiated mutually beneficial restructurings that allowed all parties to maximize value based on the reality or practicality of the situation.

Software and Technology-related Licenses

            As per the above, software and technology-related licenses need to be restructured/terminated in order for additional capital to be invested in restructured companies. Gerbsman Partners has a significant, successful track record in these areas.

About Gerbsman Partners

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in underperforming, undercapitalized and undervalued companies and their intellectual properties. Since 2001, Gerbsman Partners has successfully maximized the values of 112 companies in a wide and diverse spectrum of industries. In the process, GP has successfully restructured/terminated over $810 million of real estate executor contracts and equipment lease/sub-debt obligations, and has assisted in over $2.3 billion of financings, restructurings and M&A transactions.

Gerbsman Partners has offices and strategic alliances in Boston, New York, Washington DC, McLean VA, San Francisco, Orange County, Europe and Israel.