A strategic investor uses a very different process to identify acquisition targets than that used by financial investors (the subject of my next column). For a strategic investor, as the name implies, identifying an acquisition target must flow from the acquiring company’s strategy.

The worst methodology that a strategic investor might use to identify targets is to respond to the acquisition opportunities that it finds on an ad hoc basis. This simply will not work for two major reasons:ű

Recently I was invited attend a half day presentation given by a large mid-sized Central European client and their bankers, with the objective of renewing the company’s line of credit. While there was plenty to be concerned about with regard to the performance of the company, the bankers asked very few questions, none of which were particularly penetrating. When the bankers confirmed that the line of credit would be renewed my colleague and I looked at each other in amazement.

I was recently leading a seminar for CEO’s and business owners, where a large number of participants could not understand why the cost of equity was so much higher than the cost of debt. I had mentioned that the cost of debt (e.g. interest rates) were typically in the range of 4% to 8% for most mid-sized companies in Central Europe, denominated in euros, and the cost of equity (e.g. Internal Rate of Return) required by most private equity investors, was in the range of 25% or higher.

This article is the thirtieth in the “Corporate Finance/M&A Corner” series. To mark this occasion, I am pleased to announce the publication of a book entitled “Unlocking your Company’s Value: The Keys to a Successful Business Exit” (available at www.lesnemethy.com). The book has drawn considerably upon material used in these articles.

“Drag Along” and “Tag Along” rights are used by investors to facilitate their exit from an investment. They are methods particularly favored by private equity firms, who almost always do their best to establish a clear exit strategy even before they decide on investing in a company.

A condition precedent (CP) prior to closing is a condition that must be satisfied by a party to a transaction, failing which the other party is not bound to close the transaction. In the context of buying or selling a company, it is usually the vendor of a business who must satisfy certain CP’s before the investor is obliged to close; but there may also be conditions precedent that an investor must satisfy before the vendor is obliged to close.

When negotiating the purchase or sale of a company, the investor or purchaser will often insist on what is known as a Material Adverse Change (MAC) clause.

This article deals with three issues related to the MAC clause: 1) what is it? 2) When should it be sought by an investor or granted by a seller? 3) What happens if it is exercised by the purchaser?

1) What is it?

Public Private Partnership (PPP) is a phrase often used but not always fully understood. A PPP may be described as a project jointly undertaken by a public body (i.e. Government at any level from national to municipal) and one or more private enterprises. Whereas the private party typically develops and operates the project and provides the entrepreneurialism and drive, the public body may contribute the land (e.g. for a highway, railway, prison, hospital, etc.) and sets the rules of the game, in the public interest, by way of enabling legislation, regulation, or via tender rules.