This post is a part of the ‘Taking the Frustration out of Finance’ series sponsored by the Financial Services Section.
You are probably very familiar with the statement issued after a transaction is announced: Company A is buying Company B. The reasons are listed. Executives for both sides express pleasure at the shortly-to-be-realized potential of the new entity. The size and headquarters location of the post-deal company is listed. And then, somewhere in the statement, is the common yet inoperative phrase, or some variation thereof: financial terms not disclosed.
But how undisclosed are the terms, really? It is our job, after all, to find things that aren’t readily apparent. And the phrase “terms not disclosed” usually means that the terms were not shared publicly. Still, usually doesn’t mean always. Terms can be found: not always, not even frequently – just often enough to guarantee that due diligence means we look for them despite the phrase meant to discourage us from doing so.
If both companies are public, then the terms should be found somewhere in an SEC filing. Two merging public companies frequently put the purchase price in the press release headline. If not there, than somewhere in a 10-K or 10-Q. But when a public company buys a private company, information is not always forthcoming. The purchase price will be revealed in an SEC filing, but there can be some variation between what appears in the 8-K and what is listed in the 10-Q/10-K issued after the deal closes. And even when terms are described in a press release, they can change by the time of closing. A related question is investigating incentive payments for targets achieving certain milestones. That may be a matter for a future post, but SEC filings are a good place to start there, too.
It is when both companies are private that the phrase proves a challenge. Typically, there is no requirement for either party to broadcast terms, and neither does. But the involvement of other parties presents leads worth investigating.
Private equity/venture capital involvement: Most likely when a target is backed by an investment firm – at some point, perhaps in a press release, company report or presentation, firms sometime disclose how successful the investment in said target was. This might be months or even years after the firm’s exit, but it is a lead worth investigating.
Equity research analysts are known for making estimates. Research on competitors might contain tables/charts with industry peer transactions. This is hit or miss: there are times when the deal is listed, but no more details are included.
M&A databases and journals: the Proprietary Intelligence reports from mergermarket can prove useful, especially those quoting named or unnamed sources.
News: Obvious, but worth repeating – always check local business press and the business sections of local papers, as these reporters often have company sources closer to the events than those of the national papers. Articles on the local effect of deals can be valuable.
If the acquiror borrows money around the time of a deal announcement, this can also be a lead. There could be other reasons when more money is needed, but this is something to be aware of, in any event. Specific sources to check here include databases such as LCD News or Debtwire.
And if all these sources, together with any source you have at your disposal, add no additional information? If you haven’t found anything else to add, it isn’t that this was to disprove the phrase, but a way of confirming the original statement.
Finding information in this case is an exception, not a rule. But because we add value when we find the exceptions, we keep looking.
-Eileen Davenport, librarian, financial services firm, Chicago
Would you like to participate in the Financial Services Section’s Taking the Frustration out of Finance, or have a tricky finance-related question that you can’t quite figure out? Contact Emily Cox, Chair of the B&F Financial Services Section, at emilycox@outlook.com, or leave a comment below.