Question 1

A partnership or JV structure may be appropriate acquisition vehicle if the risk associated with the target firm is
believed to be high.

Accepted Answer

A partnership or JV structure allows for risk sharing between the partners, making it a suitable option if the target firm is believed to have a high level of risk. This helps to spread the risk and reduce the overall exposure of each partner.

Question 2

In an earnout agreement,the acquirer must directly control the operations of the target firm to ensure the target firm adheres to the terms of the agreement..

Accepted Answer

An earnout agreement typically involves additional payments to the sellers based on the future performance of the target firm, but it does not necessarily require the acquirer to directly control the operations of the target firm. The terms are structured around performance milestones, not operational control.

Question 3

Staged transactions may be used to structure an earn-out,to enable the target to complete the development of a technology or process,to await regulatory approval,to eliminate the need to obtain shareholder approval,and to minimize cultural conflicts with the target.

Accepted Answer

Staged transactions can indeed be used for the mentioned purposes, as they allow for a gradual integration and implementation of changes or developments, minimizing potential conflicts or risks.

Question 4

By acquiring the target firm through the JV,the corporate investor limits the potential liability to the extent of their investment in the JV corporation.

Accepted Answer

When a corporate investor acquires a target firm through a joint venture, their liability is limited to the extent of their investment in the joint venture corporation. Therefore, the statement is true.

Question 5

Decision-making in JVs and partnerships is likely to be faster than in a corporate structure.Consequently,JVs and partnerships are more commonly used if speed is desired during the post-closing integration.

Accepted Answer

JVs and partnerships often involve multiple parties with different interests and priorities, which can complicate and slow down decision-making processes compared to a unified corporate structure where decisions can be made more swiftly by a centralized management team.

Question 6

A post-closing organization must always be a C corporation.

Accepted Answer

A post-closing organization can be structured as any type of entity, including a C corporation, S corporation, LLC, or partnership. The specific structure chosen will depend on various factors such as tax implications, liability protection, and governance structure.

Question 7

The reverse triangular merger involves the acquisition subsidiary being merged with the target and subsidiary surviving.

Accepted Answer

In a reverse triangular merger, the acquisition subsidiary is merged into the target company, with the target company surviving and becoming a subsidiary of the parent company.

Question 8

If the acquirer is interested in integrating the target business immediately following closing,the holding structure may be most desirable.

Accepted Answer

The holding structure is typically used when the acquirer wants to keep the target business as a separate entity and not integrate it immediately. For immediate integration, a direct merger or acquisition would be more desirable.

Question 9

Sellers may find a sale of assets attractive because they are able to maintain their corporate existence and therefore ownership of tangible assets not acquired by the buyer and intangible assets such as licenses,franchises,and patents.

Accepted Answer

By selling assets, the seller is able to keep their corporate existence and ownership of certain tangible and intangible assets that are not part of the sale.

Question 10

ESOP structures are rarely used vehicles for transferring the owner's interest in the business to the employees in small,privately owned firms.

Accepted Answer

ESOP structures are increasingly popular vehicles for transferring the owner's interest in the business to the employees in small, privately owned firms.

Question 11

A holding company is an example of either an acquisition vehicle or post-closing organization.

Accepted Answer

A holding company is commonly used as an acquisition vehicle, meaning it is used to acquire and own other companies. It can also function as a post-closing organization, meaning it holds the acquired companies and manages them after the acquisition process has been completed. Therefore, the statement is true.

Question 12

When the target is a foreign firm,it is often appropriate to operate it separately from the rest of the acquirer's operations because of the potential disruption from significant cultural differences.

Accepted Answer

Operating a foreign firm separately allows for a better understanding and respect of cultural differences, which can ultimately lead to successful integration and performance.

Question 13

In a statutory merger,only assets and liabilities shown on the target firm's balance sheet automatically transfer to the acquiring firm.

Accepted Answer

In a statutory merger, all of the target firm's assets and liabilities, including those not shown on the balance sheet (like contingent liabilities or off-balance sheet items), automatically transfer to the acquiring firm.

Question 14

The acquisition vehicle refers to the legal structure created to acquire the target company.

Accepted Answer

The acquisition vehicle is a legal structure created specifically for the purpose of acquiring the target company. This structure can take many forms, such as a special purpose vehicle or a holding company, and is designed to provide the acquiring company with a framework for completing the acquisition in a legally and financially sound manner.

Question 15

Non-U.S.buyers intending to make additional acquisitions may prefer a holding company structure.

Accepted Answer

Non-U.S. buyers may prefer a holding company structure for additional acquisitions as it allows for greater flexibility in managing and consolidating investments in different countries. This structure can also provide tax advantages and legal protection for the parent company.

Question 16

A financial buyer may use a holding company structure because they expect to sell the firm within a relatively short time period.

Accepted Answer

A financial buyer, such as a private equity firm, often uses a holding company structure to facilitate the acquisition and eventual sale of a firm, allowing for easier divestiture and potential tax advantages.

Question 17

Decisions made in one area of a deal structure rarely affect other areas of the overall deal structure.

Accepted Answer

Decisions made in one area of a deal structure can often have a ripple effect and impact other areas of the overall deal structure. For example, changes to the financing terms may impact the valuation of the company, which can then impact the allocation of equity between parties. It is important to consider and communicate the potential impacts of decisions across all areas of the deal structure.

Question 18

The forward triangular merger involves the acquisition subsidiary being merged with the target and the target surviving.

Accepted Answer

The statement is incorrect. In a forward triangular merger, the acquiring company sets up a subsidiary, which is then merged with the target company. The subsidiary is the surviving entity and the target company becomes a part of the subsidiary.

Question 19

Statutory mergers are governed by the statutory provisions of the state in which the surviving entity is chartered.

Accepted Answer

Statutory mergers are regulated by state laws, and the specific provisions that govern them depend on the state in which the surviving corporation is chartered.

Question 20

A corporate structure is the preferred post-closing organization when an earn-out is involved in acquiring the target firm.

Accepted Answer

An earn-out often involves specific performance metrics or goals that the target firm must achieve post-acquisition, which can be more flexibly managed and adjusted within a less rigid organizational structure than a traditional corporate structure. This allows for more direct oversight and integration efforts tailored to achieving the earn-out conditions.

Quiz 11: Structuring the Deal: Payment and Legal Considerations

A partnership or JV structure may be appropriate acquisition vehicle if the risk associated with the target firm is believed to be high.