October 26, 2017

Deal Code Names: We Need to Talk . . .

I’m not very good at coming up with code names for deals. When asked, I usually default to a color – Project Blue, Project Red, etc.  I guess I’ve always thought that if colors were good enough for the “Reservoir Dogs” guys, then they were good enough for me.

This Intralinks blog listing 2016’s top deal code names shows that I’m not the only one who is bad at this stuff. The list is heavy on colors & birds (“Project Blue” is #1!), and transparently smarmy efforts to ingratiate the name-giver to the client (e.g., “Project Diamond”).

And then there’s “Project X”. . . Seriously? You had a choice and you picked Project X?

Creativity doesn’t seem to be a strong suit among the bankers (usually) & lawyers (sometimes) who come up with these names, but the blog points out that this shortcoming can cause real problems:

Overuse of the same, easily-guessed code names for M&A deals not only risks compromising the parties’ identities by hackers or eavesdroppers; it also increases the likelihood that confidential information will be sent to the wrong person. For junior bankers under pressure and working long hours on multiple deals, mistaking one Project Blue with another Project Blue could be a catastrophe. Sending confidential information, or mixing up buyer information across several data rooms, could result in the type of exposure no dealmaker wants.

Fortunately, there’s an alternative to this potentially hazardous lack of imagination. There are a whole bunch of random deal code name generators available online. I tried some & they churned out some good code names – I was particularly taken with the lyrical “Project Mountain Sky” – and not a single “Project Blue.”

IPOs: JOBS Act Leading to Underpricing?

This recent article from MarketWatch’s Francine McKenna flags a new study that contends that emerging growth companies’ ability to furnish less disclosure in IPOs is having an unintended consequence – underpricing of their offerings. Here’s an excerpt:

The Jumpstart Our Business Startups Act, or JOBS Act, is causing initial public offerings to leave cash on the table, according to new research, because fewer mandatory disclosures create wary investors that demand bigger post-IPO share price pops.

All three measures of underpricing—market-adjusted stock returns based on the offer price and the closing price on the day of the IPO, the closing price on the day after the IPO, and the closing price 30 trading days after the IPO—are larger for emerging growth companies, or EGCs, according to Mary E. Barth, professor of accounting at Stanford University, Wayne R. Landsman, professor of accounting at the University of North Carolina’s Kenan-Flagler Business School and Daniel J. Taylor, associate professor of accounting at the University of Pennsylvania’s Wharton School.

So why aren’t these companies complaining? The study says that’s because EGC executives are benefitting from lower levels of disclosure in other ways – including lower priced IPO equity awards & reduced comp disclosure.

D&O Insurance: Outlook for 2018

It’s getting to be renewal time for a lot of D&O policies, and this Woodruff Sawyer article reviews market conditions, claims trends and coverage issues. Here’s an excerpt on pricing expectations:

For most public companies, renewal pricing outcomes can be divided into two categories: the primary layer of the program; and, the excess and Side A layers of the program. Since fewer carriers have the appetite to write the primary layer of a D&O tower, pricing for the primary layer has held firmer. This is especially true for those companies that carriers regard as having particular markers for risk: larger market caps, challenging industries,existing or likely litigation, financial woes and other similar factors.

While the market for the primary layer has tightened, market for excess layers – including Side A –  is highly competitive & often results in a year-over-year decrease in the total premium.

John Jenkins