April 1, 2011

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It’s a Deal

Utah’s M&A Activity on the Rise

Jeff Vanek

April 1, 2011

The last couple years of the current financial crises have showed a decline in mergers and acquisitions taking place in Utah. Tight financial markets, especially when it comes to borrowing, have significantly impacted deal activity not just in Utah but across the country. The scarcity of available funds for borrowing has meant that companies and other entities looking to do merger or acquisition deals have had to use cash on hand or company stock to finance the deal. Unfortunately, stock prices have also been depressed, resulting in limited purchasing power. The good news, though, is that things have begun to turn around, according to Matthew Thorne, an attorney who serves as chairman of the MountainWest Capital Network Deal Flow Committee. Deal Flow is a comprehensive data collection effort of the MountainWest Capital Network. It is made up of a wide network of business professionals, the investment community and service providers such as attorneys and accounting firms. Data is collected from SEC filings and private reporting on equity investments, acquisitions and assets sales that take place in the state each year. “Although the official numbers are not in yet for 2010, it can be said with confidence that merger and acquisition activity involving Utah companies is on the rise,” says Thorne. “This upward trend has continued so far in 2011.” The official report for 2010 will be given at the yearly Deal Flow Awards event on May 19, 2011. Information can be found at http://www.mwcn.org/deal-flow. An interesting development in Utah, as noted by Thorne, has been the increase in homegrown companies that have stayed in Utah after being acquired by a larger out-of-state equity fund or strategic buyer. Omniture is one such example. After being acquired by Adobe Systems, the company has remained in Orem. Additionally, Adobe Systems has moved forward with expanding its presence in Utah in terms of both facilities and employees. As the business environment in the state continues to mature, it is hoped that the next level of merger and acquisition activity in the state will be for Utah companies to start being the acquirers of other companies, opposed to being the ones purchased by outside entities. M&A DEALS REPORTED TO DEAL FLOW Year 2006 2007 2008 2009 Number of Deals 34 53 34 31 Total Dollars $2.2 billion $4.5 billion $3.18 billion $2.78 billion ANGEL, VENTURE CAPITAL AND PRIVATE EQUITY DEALS REPORTED TO DEAL FLOW Year 2006 2007 2008 2009 Number of Deals 65 69 97 94 Total Dollars $287.2 million $565.1 million $404.3 million $663.5 million Source: MountainWest Capital Network 2009 Utah Deal Flow Report Controlling Interest: The Utah Control Shares Acquisition Act David Angerbauer Attorney at Holland & Hart The Utah Control Shares Acquisition Act provides a company’s leadership a useful tool for maintaining control of a sale or acquisition of the company. In simple terms, the act provides that when a person or entity acquires enough shares to be considered a controlling interest in a company, the shares acquired do not have voting rights. Voting rights can be restored to those shares, but must be granted by a majority of the disinterested shareholders of each class of outstanding capital stock prior to the transaction in question. The act does not apply to newly issued stock by a company, such as when a company is trying to raise additional funds. A company can also elect to adopt provisions in its article of incorporation or bylaws that exempt it from the requirements of the act. For the exemption to be effective however, the exemption must be made prior to the acquisition attempt. “Most executive leadership and the boards of Utah public companies have an interest in being able to carry out their fiduciary duties to the company and its shareholders,” says David Angerbauer, an attorney at Holland & Hart who has had extensive dealings with the act. “Executives and boards are especially interested in doing so in the face of a possible merger or acquisition of their company. At such times, leadership especially has an interest in ensuring that terms and conditions of the merger or acquisition are the most beneficial to the company’s shareholders.” The act only applies to public companies organized under state law that meet the following criteria: the company has 100 or more shareholders; its principle place of business, its principle office or substantial assets are located within the state; and more than 10 percent of its shareholders reside in the state with more than 10 percent of those shares being owned by Utah residents; or the company has 10,000 shareholders who reside in the state. The act does not apply to corporations in Utah that have been organized under the laws of another state. The act is applicable to both tender offers and proxy fights. In a tender offer, a third party makes an offer to buy a controlling amount of stock in the target company. Proxy offers are when a third party solicits the votes of shareholders for a controlling interest. In either case, under the act, the outstanding stock of the target company has no voting rights unless the shareholders of the target company vote to provide otherwise.
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