Letter of Intent Sample That Watches for Bear Traps

The Letter of Intent for Merger and Acquisitions is a document between a purchaser and a seller used to outline the initial terms of a merger and acquisition transaction between two companies. The Letter of Intent Sample details the purchase of stock, price, closing date, etc. and often helps streamline negotiations when the transaction is complex. This document is essential for protecting your interests during negotiations.

Private equity accessing debt again

Private equity is using debt again. While it is harder to get a home loan or small business loan, large companies and private equity, established players can access cheap bank debt. The US is showing how with its large players - Carlyle and Blackstone. There is a radically different view by each of these giants, but I believe that shows the health of PE and its ability to bring different views to their business. Take a look:

Blackstone, in reporting a 23 percent jump in third-quarter earnings, said it had found the market to buy out companies unappetizing. “There are some good companies being sold, but we just can’t get to the prices that are required,” Hamilton E. James, the company’s president, said Thursday morning.

Carlyle, though, is gobbling up companies. Not long after Mr. James’s bearish comments, Carlyle announced a $2.6 billion deal for Syniverse Technologies, a voice and data services provider for telecommunications companies. On Wednesday, it completed a $3 billion takeover of CommScope, a maker of telecommunications equipment.

The divergent approaches highlight how cheap corporate debt is fueling the recovery of the private equity business. While it remains difficult to get a mortgage to buy a home or to get a loan to fund a small business, yield-starved investors are creating a robust market for corporate bonds and loans.

Private equity firms are seizing upon the corporate-debt boom in myriad ways. For the debt-heavy companies they already own, Blackstone and Carlyle are improving their balance sheets through aggressive refinancing. Corporate loans are now available to do multibillion-dollar buyouts, too, but the easy lending environment has created fierce competition for takeover targets, driving up prices. The corporate loan market “is almost hard to believe,” Mr. James of Blackstone said.

Private equity’s outlook is certainly brighter today than it was one year ago. Buyout firms have made $173 billion worth of deals this year, up 95 percent from last year, according to data from Thomson Reuters.

Blackstone, co-founded by Stephen A. Schwarzman, may be reluctant to do deals at the moment, but its earnings report underscored just how favorable the environment has become. The New York-based firm, with $119 billion in assets under management, said its third-quarter profits were bolstered by sharp increases in the value of its real estate holdings.

Public companies have become enslaved

Top Silicon Valley player, Gordon Davidson, says that tech companies should drop the IPO goal and focus on private equity and staying as a private business. Davidson is the lawyer behind the mega deals of the past so his views are important to note. Let's look at his reasoning:

The soft-spoken Davidson, chairman of powerhouse law firm Fenwick & West, has had a hand in more than 100 mergers and acquisitions and some 30 initial public offerings — most of them in tech. He's also a lawyer for Cisco Systems, venture firm Kleiner Perkins Caufield & Byers and others.

So it's a bit shocking to hear him downplay the importance of tech IPOs today. For proof, he cites Facebook, Zynga, Twitter, Yelp and others: None is in a particular hurry to sell shares via the stock market.

"Good companies can go public in any market," Davidson says. "Today, it is easier to be a private company than a public one." Public companies "have become enslaved by the expectations of analysts and shareholders," he says.

Those forestalling public offerings are older, better-known companies that have yet to be enticed by a recent uptick in tech IPOs. For older start-ups, a new breed of private-equity investments are an attractive substitute, especially in the face of the weak advertising market that so many social-media companies depend on for revenue.

Such investments in late-stage start-ups such as 6-year-old Facebook, nicknamed "DST deals" — after Russian investment firm Digital Sky Technologies, which started the trend by funneling tens of millions into Facebook and Zynga — are a recent phenomenon. The money goes to buying shares owned by employees or early investors.

The strategy has been accentuated by several crosscurrents: the lingering effects of the worst bear market since the Great Depression; readily available private equity, in the form of investments by firms such as Andreessen Horowitz and DST; and the costs of complying with public company regulations such as the Sarbanes-Oxley Act,which established new standards for boards, management and accounting firms following accounting scandals at Enron, WorldCom and others.

"It is undeniably harder to be public today than 20 years ago," says Bill Gurley, a partner at venture-capital firm Benchmark Capital.

Consumer spending data is misleading for Canada

With Canada's GST and HST, Economist Michael Mandel's article Consumer Spending is *Not* 70% of GDP may not completely apply. Mandel does go through why shopping is not the be-all and end-all, he also explains the apparent discrepancy between retail sales and consumer spending. Let's take a look.

I opened up this morning’s NYT and see the big headline “Retailers See Slowing Sales in a Key Season.” And I just know that we are about to have another round of “consumer spending is 70% of gross domestic product, so blah blah blah blah of course we can’t recover unless consumers start spending again.” (Not in the NYT story, to their credit, but you can find similar quotes everywhere you look).

Blah blah indeed. As a textbook author, there are few things that frost me more than hearing “consumer spending is 70% of gross domestic product,” because it perpetuates two very large and very misleading untruths.

First, the category of “personal consumption expenditures” includes pretty much all of the $2.5 trillion healthcare spending, including the roughly half which comes via government. When Medicare writes a check for your mom’s knee replacement, that gets counted as consumer spending in the GDP stats.

At a time when we are wrangling over health care reform, it’s misleading to say that “consumer spending is 70% of GDP”, when what we really mean is that “consumer spending plus government health care spending is 70% of GDP.”

Second, an awful lot of those back-to-school dollars are going to imported clothing and school supplies (how many of those laptops and iPods do you think are made in the U.S.?). A dollar of consumer spending does not translate into a dollar of domestic production.

In fact, the whole way that the BEA presents the GDP statistics points the public debate in the wrong direction. GDP stands for “gross domestic product”—that is, domestic production. But the breakdown of GDP is into expenditures categories—personal consumption expenditures, government consumption expenditures, etc.

I think we need to move towards presenting GDP in terms of production, rather than spending. We need a shift from the consumer to the producer as our main unit of analysis.

But for now, we need to stop being so darned obsessed with consumer spending.

Citi selling Private Equity to Stepstone

Stepstone Group LLC said Wednesday that it has closed its acquisition of $4 billion private equity funds from Citigroup Inc. (C) as the investment bank seeks to offload its alternative assets units ahead of U.S. new financial rules discouraging banks from engaging in risky trades with their own money.

Financial details of the transaction weren't disclosed but the package includes fund of funds, mezzanine and co-investment businesses.