Merger and Acquisition “Truths”

Many representatives and advisors of renewable energy businesses believe (or at least hope) that 2010 will witness a significant “uptick” in merger and acquisition (M&A) activity across all renewable energy industries. As renewable energy businesses continue to attract funding and benefit from favorable governmental policies (or, conversely, as funding slows down or governmental policies change), such businesses should be in a position to attract suitors and/or explore growth opportunities. To the extent you are looking for or experience M&A opportunities, below are a few “M&A Truths.”

1. Surprises kill deals. Any unexpected fact or circumstance that differs from the buyer’s knowledge or assumptions (e.g., insufficient or unperfected land rights, environmental concerns, missing permits, poorly drafted or negotiated PPA or other critical documents, etc.), will negatively impact a buyer’s willingness to do the deal at the originally contemplated price.

2. Due diligence: Quick may be necessary, slower may be best. Time is the enemy of all deals, but there is usually real value in taking time to think about what you just read or learned.

3. Things take longer than you think and cost more. Just like a kitchen remodel, you should expect to spend more time and money on a deal than you originally budgeted.

4. Small deals can be more complex than larger deals. Aside from regulatory compliance (e.g., antitrust and securities laws) and financing needs, the structure of a typical $5 million deal often is more complex than the typical $100 million deal:

• Earnouts (which are complex) are more common in smaller deals and almost always involve securities that must be registered or an exemption found.
• Smaller deals often include provisions that evolve into uncommon structures to accommodate a seller’s risk tolerance.
• Transactions involving less cash can require creative ways to compensate differently situated stakeholders.

5. “That’s standard” is a satisfactory answer to a charge that a term is unheard of, but not to a request for an explanation of why it’s needed. Smaller transactions often require more explanation of deal terms that may be unfamiliar to participants.

6. At the end of the day, you may do a deal you would not do at the start of the day. Although you may have a very clear understanding of what a business is worth to you and why, it is possible that your original analysis is flawed, and you should be willing to pay more or take less.

7. Acquisition is more fun than integration. Good integration will not save a bad deal, but bad integration can ruin a good deal or make a bad one worse.

8. Many deals never happen. Although parties may be very interested in making a deal happen and may incur significant expenses, numerous things may derail the process.

If you would like to learn more about these “M&A Truths” or receive a complimentary “M&A Truths” flip book, please visit us at booth #811.

—Duff Bryant is a partner with Stoel Rives LLP, a full-service, U.S. business law firm, and is chair of the firm’s M&A team. Duff counsels private and public companies in a wide range of industries, including renewable energy, on buying and selling businesses and projects in the U.S. and abroad. Duff can be reached at [email protected].