HL Press Feed

Joseph Swanson Gives A Timely Interview On Debt to Real Deals Magazine

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Joseph Swanson, a Managing Director at Houlihan Lokey, talks about restructuring transactions, the high-yield bond market, and banks’ changing attitude towards lending in this piece for the Debt Insider section of Real Deals.

Click here to read the full article.

Study: The Value of a Strategic Review

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In April, 2010, Houlihan Lokey and Corporate Board Member Magazine conducted a Strategic Review Study that was sent to 1,000 directors of public companies. 243 directors returned the survey, constituting a near 25% response rate. In this piece, Corporate Board Member and Robert Hotz, Senior Managing Director and co-Head of Corporate Finance analyze and reveal the motivations of public company directors that are considering strategic review engagements based on the study’s findings. Hotz found that, "The most important reason for undertaking a periodic strategic review is to ensure that both the board of directors and management are aligned with respect to key issues facing the company and its overall strategic direction."

Click here to read the full article.

Valuation and Risk Management: Two Sides of the Same Coin

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“A firm that cannot properly value its assets cannot effectively manage its risk,” says Dr. Cindy Ma in “A Tale of a Two-Sided Coin”—published in the June edition of Risk Professional. While this notion may seem fundamental, many financial institutions and asset managers continue to view valuation and risk management as two separate disciplines.

Dr. Ma explores the relationship between valuation and risk management, lessons learned from the recent financial crisis, and emerging valuation best practices for effectively managing risk, in this must-read for risk management professionals, asset managers, valuation practitioners and investors.

The article also includes a detailed explanation of the benefits a third-party valuation opinion of illiquid assets can provide with respect to managing and mitigating risk, avoiding conflicts and meeting investor demands for greater transparency. In addition, Dr. Ma explores the differences between three common forms of third-party valuation opinions and their potential impact on asset managers and investors.

To download “A Tale of a Two-Sided Coin” click here

mergermarket - Houlihan Lokey Study: PRIVATE EQUITY M&A AND DUE DILIGENCE OUTLOOK

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“More than 90% of respondents expect financial due diligence to directly influence the terms and conditions of M&A transactions during the next 12 months.”

Private equity practitioners expect a significant increase in deal flow over the next 12 months, along with heightened valuation concerns and more rigorous due diligence procedures, according to a new study released today by mergermarket in association with Houlihan Lokey.

After a protracted flat period, private equity deal flow is gaining momentum but buyers and lenders are approaching new opportunities with caution, the study found. Based on a series of interviews with private equity practitioners in North America, the study infers a significant increase in private equity transaction volume but increasingly favorable conditions for sellers.

Increased scrutiny from lenders, valuation gaps, and time-consuming credit negotiation processes emerge as just some of the many challenges facing private equity firms during due diligence this year. Under these conditions, respondents say industry expertise and responsiveness to deadlines will be critical to their selection of a due diligence provider, even more so than cost.

To download Private Equity M&A and Due Diligence Outlook, click here (980KB PDF file, opens in a new window).

2009 TRANSACTION TERMINATION FEE STUDY

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“In the 2009 study, termination fees as a percentage of transaction value ranged from 0.7% to 7.6%, with a mean of 3.5% and a median of 3.4%.”

Given the time and expense involved in negotiating and structuring a proposed transaction, acquirers are continuously looking for creative ways to deter competing bids before the consummation of a transaction. Protective devices used by acquirers are heavily negotiated and may include termination fees, “lockup” agreements and “no-shop” provisions. Conversely, in seeking to maximize stockholder value, boards of directors of target companies try to obligate the acquirer to consummate the agreed-upon transaction while maintaining the flexibility to seek and accept a superior offer for the target.

Properly crafted, a termination fee provision can facilitate the sale of a company by ensuring that the bidder will receive a material “consolation prize” to defray its investment—in time, out-of-pocket expense and opportunity cost—if the transaction is not consummated. On the other hand, termination fees protect the acquirer by effectively increasing the price that a third-party bidder will need to pay in order to consummate a competing transaction.

Houlihan Lokey is pleased to share with you its 2009 Transaction Termination Fee Study, which summarizes key termination fee metrics for M&A transactions announced in 2007, 2008 and 2009. We have also analyzed termination fees as a percentage of target enterprise value to reflect the growing judicial recognition of enterprise value—as a benchmark for assessing acceptable termination fee levels.

To download Houlihan Lokey’s 2009 Transaction Termination Fee Study, click here.

RICHARD DE ROSE PROVIDES INSIGHT ON THE CURRENT CLIMATE IN THE CAPITAL MARKETS VIA WEBCAST TO DIRECTORSHIP

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"Richard De Rose, managing director, Houlihan Lokey, discusses fiduciary duties in turbulent times as part of the Boardroom Guide to Capital Markets."

To view the webcast "Boardroom Guide to Capital Markets," please click here.

BOARD FOCUS ON M&A: COMMERCIAL REAL ESTATE

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Corporate Board Member, April 2009

"The commercial real estate market appears to be in a holding pattern. A significant amount of capital is on the sidelines, waiting to be invested, and a vast amount of deleveraging is needed. But no one wants to jump on board too soon, which has created a standoff on the road to the market’s ultimate recovery. Corporate Board Member is pleased to present experts from Houlihan Lokey and Alston & Bird LLP to discuss the critical issues that will impact growth in the commercial real estate market this year and beyond."

To read the full article, please click here.

DIRECTORSHIP'S BOARDROOM GUIDE TO CAPITAL MARKETS

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“In the current environment, directors need to be actively involved. Although your responsibility is to supervise rather than micromanage, in order to supervise adequately, a director needs to have a thorough understanding of all aspects of the business and the challenges and risks associated with that business.”

Directorship’s February/March 2010 Boardroom Guide to Capital Markets features Houlihan Lokey’s Richard De Rose exploring some of the specific challenges and requirements for directors with respect to capital structure, insolvency and risk.

Click here to download the full article in Adobe Acrobat format (284kb PDF file, opens in a new window).

THE PRICE OF ILLIQUIDITY: VALUATION APPROACHES ACROSS ASSET CLASSES

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“The notion of illiquidity is crucial for practitioners who value assets that do not have readily-available market quotations. Intuitively, assets that are difficult to sell are worth less than those that can be rapidly and cheaply converted to cash at a reasonable price. Across most asset classes, investors are willing to pay a premium for assets that are more liquid.”

In The Price of Illiquidity: Valuation Approaches Across Asset Classes, Houlihan Lokey’s Cindy W. Ma, Ph.D., CPA, CFA and Andrew MacNamara revisit and examine the various approaches that have been used to measure illiquidity discounts among equity and debt securities, and begin to establish a framework for determining illiquidity discounts for more exotic instruments such as the structured products and derivatives which were central to the recent credit crisis. While empirical research into illiquidity discounts for equities and traditional debt securities has been extensive, this paper—the first in a series—is among the first to attempt to determine an appropriate illiquidity discount for contemporary derivatives and structured products.

To download The Price of Illiquidity: Valuation Approaches Across Asset Classes, click here (1.31 MB PDF file, opens in a new window).

2008 TRANSACTION TERMINATION FEE STUDY

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“In the 2008 study, termination fees as a percentage of transaction value ranged from 0.4% to 8.1%, with a mean of 3.4% and a median of 3.3%.”

Given the time and expense involved in negotiating and structuring a proposed transaction, acquirers are continuously looking for creative ways to deter competing bids before the consummation of a transaction. Properly crafted, a termination fee provision can facilitate the sale of a company by ensuring that the bidder will receive a material “consolation prize” to defray its investment—in time, out-of-pocket expense and opportunity cost—if the transaction is not consummated. On the other hand, termination fees protect the acquirer by effectively increasing the price that a third-party bidder will need to pay in order to consummate a competing transaction.

Houlihan Lokey is pleased to share with you its 2008 Transaction Termination Fee Study, which summarizes key termination fee metrics for M&A transactions announced in 2006, 2007 and 2008. The study also contains data related to “reverse breakup fees,” or fees payable by the acquirer to the target, if funding falls through or the transaction is otherwise terminated.

To download Houlihan Lokey’s 2008 Transaction Termination Fee Study, click here.

HOULIHAN LOKEY’S EUROPEAN GOODWILL IMPAIRMENT STUDY 2009

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Houlihan Lokey’s inaugural European Goodwill Impairment Study analyzes acquisition histories and goodwill impairment charges recorded by the 600 largest, listed European companies which comprise the Dow Jones STOXX 600 Index between 2005 and the first half of 2009. We analyzed and compared goodwill write-downs, the development of book value of equity, market capitalization and the purchase price paid for acquisitions by companies across several major industries. The study indicates that the recent market-wide decline in market capitalization, a result of the global financial crisis, appears to have not been reflected by companies in their financial reporting.

A key feature of the study is the development of the Impairment Risk Factor (IRF), a “weather forecast” indicating the outlook (Sunny, Cloudy, Rainy or Stormy) for potential impairment charges across each industry analyzed.

The study’s key findings include:

Between 2005 and 2007, acquisitions totalled EUR 1.2 trillion, yet, only EUR 85 billion of goodwill was written-down between 2008 and June 2009, leaving the potential for further write-downs of goodwill acquired in these transactions.
The financial crisis may not be fully reflected in the balance sheets of Dow Jones STOXX 600 companies. Impairments of goodwill booked in 2008 and the first half of 2009 are in line with those booked in 2005, 2006 and 2007.

At the end of June 2009, the book value of equity significantly exceeds the market capitalization for approximately 20% of companies analyzed indicating the potential need for an impairment of assets.

While no overall industries were determined to have an IRF of Stormy, Healthcare was the only industry which could be classified as Sunny. The outlook for all other industries was either Cloudy or Rainy, but within each industry, there were companies which had a Stormy forecast.

To download your complimentary copy of The European Goodwill Impairment Study, please click here.

2008 PURCHASE PRICE ALLOCATION STUDY

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“While the familiarity of SFAS 141(R) will help mitigate mixed practices often observed with the adoption of new accounting pronouncements, the determination of fair value in the context of acquisition accounting will continue to require subjectivity and judgment.”

Houlihan Lokey has completed its eighth annual Purchase Price Allocation Study, which summarizes purchase price allocations recorded by U.S. public registrants. The study is one of the largest, most detailed investigations of its kind, analyzing 439 transactions completed in 2008, and drawing comparisons to certain transactions completed in 2007 and 2006. We hope that you will find this information helpful as you consider the financial accounting implications of your acquisition strategy.

To download your complimentary copy of the study, please fill out the form here.

BOARD FOCUS ON M&A: A CLOSER LOOK AT TECHNOLOGY, MEDIA, & TELECOM

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Corporate Board Member, September 2009

Houlihan Lokey's Chris Wilson and Jason Hutchinson discuss developments in the Media and Telecom industry.

Click here to download the full article in Adobe Acrobat format (3.79mb PDF file, opens in a new window).

SOLVENCY AND RELATED VALUATION OPINIONS

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“Solvency opinions are expected to weigh more heavily on transactions than they have in previous years. 60% of overall respondents believe solvency opinions will often have a direct impact on the terms or the completion of a transaction, but only 32% of respondents say solvency opinions had this strong an impact before the credit crisis.”

Recently making news for their role in a number of high-profile failed buyouts, solvency opinions have become a hot topic for transaction professionals. In a new study released by mergermarket in association with Houlihan Lokey, 60% of respondents believed that solvency opinions will now often have a direct impact on the terms or completion of a transaction, compared to only 32% who believe solvency opinions had this strong an impact before the onset of the credit crisis. This figure underscores a rising importance of these types of opinions for transaction professionals and boards of directors worldwide.

The study, conducted during the third quarter of 2009, compiles interviews of senior corporate executives, private equity practitioners and lawyers from the US and Europe regarding their recent and historical experience with solvency and related valuation opinions.

To download Solvency and Related Valuation Opinions, click here (1.22MB PDF file, opens in a new window).