The Department of Justice filed suit Thursday to block Visa Inc.’s planned $5.3 billion acquisition of Plaid Inc., a move that could signal a tougher road ahead for the payments giant as it tries to expand into new-school avenues of fintech. In its complaint, the Justice Department alleges that Visa V, +0.42% is a “monopolist” in online debit and is seeking to eliminate the “nascent competitive threat” brought on by Plaid, which allows consumers to connect their bank accounts to hot fintech platforms like investment platform Acorns and PayPal Holdings Inc.’s Venmo. The suit filed in U.S. federal court for California’s Northern District alleges that Plaid has a valuable network of connections to banks and consumer accounts that “position Plaid to overcome the entry barriers that others face in attempting to provide online debit services.” Visa asserted in a statement that the Justice Department’s “attempt to block Visa’s acquisition of Plaid is legally flawed and contradicted by the facts.” The company said that it doesn’t face competition from Plaid, whose capabilities “complement Visa’s.” “Visa is confident that this transaction is good for consumers and good for competition,” the company continued. Barclays analyst Ramsey El-Assal wrote that the Justice Department suit is a bit surprising given that the U.K.’s Competition and Markets Authority recently offered approval for the deal and suggested that Visa’s move into open banking—the idea of enabling greater access to bank and other financial data—might be a tougher road than originally expected.

As you will read, financing M&A activity is very different than funding stand-alone growth with venture capital, as the investors are largely very different—mostly banks, private equity firms and family offices, instead of venture capital firms. This post will help you better learn your M&A financing options. 1 Equity Only—No Cash Needed M&A activity doesn't always mean that cash needs to trade hands. Sometimes you can implement a merger by basically using your equity as a currency, and negotiating a pro rata stake in the combined company. For example, if you have two equal sized businesses both valued at about the same valuation stand-alone, you can merge the companies together and your original shareholders would own 50% of Newco and the other company's shareholders would own the other 50% of Newco. If they are not the same size, use a metric like relative revenues or relative EBITDA and set the relative ownership that way (e.g., if one business generates 75% of the combined profits day one, they could own 75% of the combined equity in Newco). 2 Cash on Hand or Company Profits If cash is needed, maybe your business has cash on its balance sheet or it is generating material profits, and you can fund your M&A activity that way, with no outside capital. Since companies are typically valued as a multiple of EBITDA, you may need to save up a few years of profits, in order to afford the other company you are trying to buy, if they are the same size as you. 3 Seller Notes The easiest way to finance an M&A transaction is to have the seller agree to not take all of their cash up front. As an example, maybe you pay them 80% at closing, and you pay them 20% in a seller note a year or two down the road. Any seller that has confidence in their business, should be willing to agree to at least a small amount of seller note to help you afford the upfront transaction. 4 Seller Equity In many scenarios, having the seller involved with the future of Newco can be very helpful. Maybe you don't know their industry very well? Or, they bring some specific skillset to the table, and they would enjoy keeping part ownership and future involvement in "their baby." That helps them to get some upfront liquidity by selling a large portion of their ownership, but at the same time, let's them participate in the long term growth that is created, as a minority shareholder. So, as an example, if you give the seller a 10% stake in Newco, you only need to fund the 90% of the company's valuation upfront. MORE FOR YOU 4 Industries That Show How The Pandemic Creates New Opportunities Nine Effective Ways To Mediate Workplace Conflict The World’s Most Influential CMOs 2020: Resolute Leadership In Transformative Times 5 Banks & SBA Backed Loans Banks are often the first call for funding M&A. But with banks, there are several hurdles you need to get through. They need to like the industry, the team, the historical cash flow trends, the underlying assets of the business they can secure, the financial covenants, etc. And, the more cash flow you have as a combined company, the higher odds a bank with lend to you. There are some banks that will lend to companies as small as $500K of cash flow, but the vast majority don't really get excited until you are generating $3-5MM in cash flow. So, look for targets that can help you get to that threshold, to simplify your M&A fund raising efforts. And, keep in mind, bank finance will be the most senior loan in your capitalization table, and banks will need to be repaid within a couple years (and will be senior to any other note holders, including the seller note above). So, plan accordingly. In addition, the banks are often conduits to loans backed by the Small Business Association, where they will lend up to 90% of the transaction. But the price is steep with the mandatory personal guarantees that will be required, putting you personally on the hook for any defaults by the company. Personal guarantees can often be avoided in typical bank loans for companies generating enough annual cash flow, so only go down the SBA-backed road if it is your only option. 6 Private Equity Firms and Family Offices The lion's share of the capital needed for M&A will most likely come from private equity firms or family offices, likes these linked examples in Chicago. There is a shortage of really good companies for sale, and these investment companies are more than willing to back good teams building good ideas, assuming the combined company is generating a lot of cash flow (which they can take to the banks and finance a portion of the deal with debt, to reduce their equity investment need). Again, because they are looking to the banks for help, they too will bias companies with over $3-5MM of combined cash flow (although many will look at deals smaller than this, if only investing equity). Before you reach out to PE firms, make sure to research if they like to invest in deals within your industry and revenue stage on their websites. Example Deal So, let's put this all together in an example deal. Let's say you found an ecommerce company to buy, that is generating $2MM in cash flow. Assuming that company is growing 20% a year, it could be worth 5x cash flow, or $10MM. You think it is important to keep the founder involved, and you are willing to have him take a 10% stake in Newco, so you really only need to finance $9MM to buy the 90% stake. That could be funded $3MM by a private equity firm, $3MM by a bank and $3MM by a seller note (if amenable to the seller). And, the private equity firm would most likely want you to have some "skin in the game," so maybe their portion is split $300K from you and $2.7MM from them. Ninety days and lots of negotiations later, you should be ready to close. This is an example only, as the multiples, amounts and percentages can vary substantially by deal, company, growth rate and industry.

Dunkin’ Brands, the parent of Dunkin’ and Baskin Robbins, is negotiating with a private equity-backed company for a sale that values the restaurant chain at nearly $9 billion. The potential takeover, reported first by The New York Times on Sunday, would come at a 20 percent premium to Dunkin’s share price on Friday, which was already trading near a high. That’s a lot of doughnuts, notes today’s DealBook newsletter. What is the prospective buyer, Inspire Brands, getting for its money? Dunkin’ has done well during the pandemic, benefiting from investments in its digital business before the coronavirus outbreak, helping it offer contact-free takeout. Shifting work patterns mean more people are coming in later in the day, bolstering premium products like espresso and specialty beverages, which diners may have bought from smaller, independent coffee shops before. (Drinks make up more than half of Dunkin’s revenue, and it dropped “Donuts” from its name last year.) Bankers have long considered the company, whose 21,000 Dunkin’ and Baskin Robbins outlets are all franchised, a takeover target. It would be a jewel in the portfolio of Inspire Brands, a conglomerate backed by the investment firm Roark Capital, which has been on a buying spree in recent years, acquiring chains like Arby’s, Buffalo Wild Wings and Jimmy Johns. Inspire’s strategy is to improve companies’ digital operations while keeping their brands separate. (Its chief executive, Paul Brown, has said he wants to organize the company like Hilton Hotels, where he once worked.) Owning a dominant chain like Dunkin’ could be the final touch Inspire needs before going public, as some expect — though Inspire has never confirmed such plans. Despite the price, the availability of cheap debt and steady cash flow from the chain’s franchises should make it easier to finance. Pent-up demand for deals led to a big jump in mergers and acquisitions in the third quarter, and a Dunkin’ takeover could inspire other private equity firms to jump into the fray for pandemic-proof targets.

Advanced Micro Devices agreed to pay $35 billion in stock for Xilinx, a deal aimed at reshaping one of the computer chip industry’s pioneers. AMD, known mainly as Intel’s longtime rival in microprocessors that power most computers, plans to use the acquisition to broaden its business into chips for markets like 5G wireless communications and automotive electronics. The transaction could also help AMD grab a bigger share of component sales for data centers and counter a prominent rival, Nvidia, which is also bulking up. The all-stock deal, announced on Tuesday along with AMD’s third-quarter financial results, would be close to the most valuable acquisition in the chip industry’s history. Those bragging rights are currently held by Nvidia for its proposed $40 billion deal for the British chip designer Arm, which was announced last month. Chip makers have experienced several consolidation waves, driven by factors such as duplicate product lines and cost-cutting strategies. But AMD, which is enjoying some of the most robust sales in its 51-year history, expects Xilinx to expand its business while increasing profits. Lisa Su, AMD’s chief executive, said in prepared remarks that Xilinx would help establish her company as “the industry’s high-performance computing leader and partner of choice for the largest and most important technology companies in the world.” That sort of reputation has long eluded AMD, which for decades was seen as an Intel follower that mainly won sales with lower prices. But the company has lately grabbed a lead over Intel in some key measures of computing performance, while its larger rival has suffered technological and financial stumbles. On Thursday, Intel reported a 29 percent decline in quarterly profits, which caused its stock to fall more than 10 percent. AMD, by contrast, reported on Tuesday that its quarterly profit had risen 148 percent. AMD’s stock, which was trading five years ago at about $2 a share, has risen nearly 80 percent this year and closed Tuesday at $78.88, down 4 percent on the day. AMD’s market value stands now at nearly $100 billion. Xilinx, founded in 1984, is the biggest maker of a class of chips that can be reconfigured for a variety of specialized tasks after they leave the factory. Such field programmable gate arrays, as they are called, have long been particularly popular in telecommunications applications, such as cellular base stations now being upgraded for the latest 5G technology. Xilinx has also been one of the biggest chip companies hurt by trade limits on China’s Huawei, a major maker of networking equipment and one of Xilinx’s biggest customers. The company last week said that revenue had declined 8 percent. But Xilinx’s gross margins are much higher than AMD’s, and the company continues to generate considerable cash. Xilinx’s market value stands at about $28 billion, reflecting a sharp jump after The Wall Street Journal reported deal talks between the companies on Oct. 8. AMD’s interest in Xilinx emulates a path taken by Intel. In 2015, Intel entered the same business by paying $16.7 billion for Altera, Xilinx’s main competitor. That deal, inspired partly by the prospect of producing Altera chips in Intel factories, has failed to generate big returns as Intel’s manufacturing processes have fallen behind rivals. AMD relies heavily on external manufacturing partners, as does Xilinx — particularly Taiwan Semiconductor Manufacturing Company, which has grabbed a lead in packing smaller transistors on each chip. Both companies have also pushed new technologies for creating new products from packaging multiple chips together. The proposed transaction dwarfs AMD’s most significant past acquisition, a $5.4 billion deal for ATI Technologies in 2006 that took the company into competition with Nvidia for chips that render images in video games. That graphics technology would make AMD a major supplier of chips for video game consoles. But it also saddled AMD with a heavy debt load that took more than a decade to erase. AMD reported about $1.7 billion in cash at the end of September.

Aston Martin, Cineworld and The Restaurant Group have become vulnerable to takeover bids during the latest lockdown, City sources have warned. Bankers said some companies were taking on lots of debt and could struggle without income for weeks or months, making them easy targets for private equity vultures. 'Aston Martin is not in great shape,' a top banker said. 'It is one step before rescue category and it's a bit of a trophy for a buyer. Hospitality firms are also in the danger zone.' Vulnerable: Bankers said some companies were taking on lots of debt and could struggle without income for weeks or months, making them easy targets for private equity vultures Other companies could be forced to tap shareholders again for cash. Sam Smith, chief executive of FinnCap, an investment bank and broker, said: 'All the companies severely impacted by Lockdown One will probably need to do further raises at some point but they're already indebted. 'Those businesses that were very impacted – hospitality, retail, travel – are obviously going to be impacted further.' Firms have raised more than £27billion on the stock market since the first lockdown, according to investment bank Peel Hunt. Its chief executive, Steven Fine, said board room concerns over debt levels 'may well result in an increase in the need for equity over the next few years. 'It feels like the merger and acquisition cycle is about to take off quite sharply. Private equity is chock-full of cash.'

London News Update: RSA is in talks with a consortium of Canadian insurer Intact Financial and Danish insurer Tryg about a possible break-up deal that values the British firm at about 7.2 billion pounds ($9.46 billion). RSA said its board would be minded to recommend the proposal for 685 pence in cash per RSA share, plus the payment by RSA of its previously announced interim dividend of 8 pence per share. The offer was made on Oct. 2 and represents a 50% premium to RSA’s closing price on Oct. 1. If successful, the deal would allow Intact to boost its presence in the competitive Canadian property and casualty (P&C) industry while Tryg would create the largest listed P&C insurer in Scandinavia with total assets of about 99 billion Danish crowns.

Walmart Inc said on Friday it would sell its retail operations in Argentina to supermarket chain owners Grupo de Narváez. The company did not disclose the size of the deal.

American Tower Corp said on Thursday it will buy communications firm InSite Wireless Group LLC in a $3.5 billion deal, aiming to snap up more telecom assets as 5G builds momentum in the United States. American Tower is one of the largest real estate investment trusts globally that owns and operates over 181,000 communications towers. It leases out the towers to telecom companies. InSite has over 3,000 communications towers, mostly across the United States and Canada. American Tower said it expects InSite’s assets to generate about $150 million in property revenue, and about $115 million in gross margin in its first full year after the completion of the deal. Cleary Gottlieb Steen & Hamilton LLP served as the principal legal adviser to American Tower, and Evercore was the financial adviser for InSite, while Lowenstein Sandler LLP was its principal legal adviser.

TikTok-owner ByteDance is in early talks to raise a new round of financing that will value it at $180 billion after the investment, according to two people familiar with the matter. The company is discussing the round with existing investors including Sequoia Capital and General Atlantic to raise around $2 billion for the company, the people said, declining to be named as the talks were not public. This is not a pre-IPO round, one of the sources said, as ByteDance has not yet decided on whether to obtain a standalone public listing for Douyin, the Chinese version of TikTok, or list some of its Chinese operations including Douyin and news aggregator Jinri Toutiao as a package in Hong Kong or Shanghai. ByteDance has been exploring both scenarios, Reuters reported last month and in July. General Atlantic declined to comment. ByteDance and Sequoia Capital did not immediately respond to requests for comment. Washington has put heavy pressure on the company to sell the U.S. operations of its highly popular TikTok short video app. The White House contends that TikTok poses national security concerns as personal data collected on 100 million Americans who use the app could be obtained by China’s government. Talks have been ongoing to finalise a preliminary deal for Walmart Inc WMT.Nand Oracle Corp ORCL.N to take stakes in a new company to oversee TikTok's U.S. operations. ByteDance is currently settling details in areas like personnel, such as which staff members will join the new TikTok entity, one of the sources said. The Chinese company has seen its valuation more than double in the past two years. ByteDance’s last round of financing dates back to 2018, which valued the company at $78 billion after the investment. Earlier this year, ByteDance was valued at as much as $140 billion in the secondary private equity market

G4S rejected a £3.3bn bid from US rival Allied Universal last week, turning away a second suitor in the takeover battle for the world’s biggest security company. The British company is publicly fighting a lower £3bn hostile bid from Canada’s GardaWorld. It said it had also rejected a conditional offer from Allied last Wednesday at a price of “at least 210p a share” on the grounds that it was too low.  G4S added that talks were continuing and it was “engaged with Allied and an independent consultant to establish a process through which commercially desensitised information may be provided”. Its intervention kicks off a three-way contest for G4S, which employs 530,000 staff in 85 countries guarding embassies, sports stadiums and music events, as well as providing justice services such as the management of prisons. Shares in G4S rose 4.9 per cent to 214.60p on Tuesday, giving the company a market value of £3.3bn. Tyler Tebbs, an analyst at Louis Capital, said the Allied bid could “light a fire under Garda’s butt and force them to put their real offer on the table”. “It sounds like Allied is serious and will come back,” he added. Last week G4S recommended that shareholders reject Garda’s bid, which is backed by private equity company BC Partners, calling the offer of 190p a share “wholly inadequate”. Allied Universal is a security and facilities manager with more than 200,000 staff in the US, Canada, Mexico and the UK. There are concerns that any deal with G4S could raise competition issues in its domestic market. The company is backed by Canadian pension fund Caisse de Dépôt et Placement du Québec, private equity company Warburg Pincus and J Safra Group, a Brazilian bank. Allied was unavailable for comment. GardaWorld, based in Montreal, has 102,000 staff and £2.1bn in revenue. It has been on a dealmaking spree, adding nine businesses in the year to January 2020. If G4S is sold, it would be among the 10 largest UK public companies to be taken private in the past five years, according to Refinitiv data.  Advent International’s £4bn acquisition of Cobham and the $6bn purchase of satellite company Inmarsat by a group led by Apax and Warburg Pincus are among the others.  Robert Plant, an analyst at Panmure Gordon, said: “We see scope for higher offers from both companies and have a 225p target price. “G4S, as the market leader, is a unique asset which should be appealing to potential bidders.”

Answer: The textbook definition is: Due diligence is an investigation, audit, or review performed to confirm the facts of a matter under consideration. In the financial world, due diligence requires an examination of business financial records before entering into a proposed buy/sell transaction with another party. But, what are some real world examples where this is extremely important? In my experience, business Sellers tend to avoid disclosing information that might decrease the value of the business they intend to sell. Therefore, take for example, a situation where a Fortune 500 corporation wants to buy one of it’s major competitors for billions of dollars. In an effort to quickly close the transaction they rushed their Due Diligence team to rapidly wrap up their work and they took shortcuts to finish quickly. The buyer proceeded to immediately close on the transaction. After they had owned this company for only a few months they eventually realized that the Seller had materially overstated profitability and significantly under-funded the employee Pension Plans and this item alone ended up costing them more than an additional $5 billion to purchase the company! Therefore, the value and importance of a highly skilled M & A Due Diligence team in the acquisitions process cannot be overstated!

Check here https://www2.deloitte.com/us/en/pages/financial-services/articles/banking-securities-mergers-acquisitions-outlook.html