In short, the credit crunch will continue to have ramifications. The tightened lending markets will likely result in a slowdown of activity, while PE-driven deals will have less "buyer-friendly" terms, he noted. Further, buyouts will need to have more equity as a component, which will cut the return the fund can realize on a deal and in turn reduce the price a fund is willing to pay and the attractiveness to a target. He noted:
Sovereign wealth funds and special purpose acquisition vehicles, may fill the gap, but these capital pools have inherent differences from PE funds that may make them less effective drivers of public M&A activity than the private equity funds. ...
In the future, companies will likely be more sensitive to completion risk and seek to negotiate more effective protections to address this concern. The size of reverse breakup fees (or minimum capitalization requirements for the shell companies) may increase, or companies may seek direct enforcement rights against financing sources. Whether boards will be successful in extracting such enhancements remains to be seen.
To that end, strategics willing to put their balance sheet behind a deal may provide a more attractive option for some targets and given recent litigation, more carefully worded merger agreements are likely to come. - The editors
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