Tuesday, April 14, 2009

Entrust Goes Private: More Commentary

Those of you considering your own exits(or acquisitions) need to take a look at this evaluation of the Entrust/Thoma Bravo deal in the New York Times.

The Entrust agreement signals a shift away from deals that can be terminated because of a broad range of "material adverse changes." A year ago or more, a buyer would have retained significant rights in a deal like this to walk away before closing for any reason, with little obligation other than to pay a termination fee.

Fast forward to today and it appears that the leverage has shifted to the seller. As the NYT notes, the Entrust deal appears locked in: unless certain minimum working capital requirements are not met, Thoma Bravo has very little ability to terminate the deal. There are 16 carve outs from a formerly typical "mac" clause.

Further, the acquisition agreement (filed yesterday with the SEC) gives Entrust astonishingly broad rights to force the transaction to completion. Entrust can sue Thoma Bravo directly and even force it to complete the transaction. In addition, "Entrust [has the right]to sue for the economic benefit of the transaction if specific performance was unavailable — a way to ensure that Entrust shareholders can receive the share premium in a deal dispute".Entrust's obligations to Thoma Bravo if its shareholders reject the offer? Small; Entrust must reimburse fees and expenses up to $1 million.

Contrast this with BCE's deal, and you'll see the shift.

Check out the rest of the post to get a great review of changes to "MAC" clauses sellers are successfully negotiating.