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06-08,78-85_ACG.qxd 4/6/09 5:11 PM Page 79THE PULSEdisproportionately affect minorities? I thinkthat federalized corporate decision-making, inan environment of the almost total dominationof the government by a party that has closeties to unions, will increasingly lead to politicizedeconomic policies and protectionism, impairingcross-border M&A as other nations retaliatewith protectionist policies.— Don Keysser, Managing Director,Hannover Ltd.—————————The question contains a false assumption,namely that taxpayers are footing the bill forthe corporate refinancing now underway. In fact,these rescue financings are themselves beingJohn P. Adamsfinanced viasale of governmentdebt. Aswe all know theprimary buyersof that debt areforeigners, notablyfrom China,Japan andIndia. So becomingmore protectionistwould beto slice off thehand that feeds.One could do itbut it would notbe in our self interestto reduce trade with those who are keepingus afloat.Regarding the consequences of these refinancingsfor the M&A market, since the beneficiariesof the rescue packages are almostexclusively very large corporate entities, thequasi-takeovers of these behemoths by thegovernment should not impact the acquisitionof smaller firms. Probably it would be hard tosell Citibank or GM or AIG with the USA as astakeholder, but why would you want to— John P. Adams, President,Adams & Royer, Inc.—————————I don’t see the connection between taxpayermoney flowing into the banking system andprotectionism because the issue is liquidity, notkeeping ownershipof the industriesout offoreign hands. Alarger issue forM&A in theshort term isthat industriesthat need to failor divest assetsare being kepton artificial lifesupport, whichkeeps them offRick Taftthe market (fornow). But taxpayermoney isat best only a respite, not a cure. In fact it encouragesexecutives and politicians to paper overserious problems in favor of an illusory quick fix.Sooner or later, the market inevitably will resetitself and flawed companies will fail or divest assetsanyway, so in the longer term M&A activityshould pick up and offer lots of creative opportunitiesfor well capitalized and patientbuyers. One effect of the taxpayer money mightend up being the difference between presidingover an inevitable but somewhat orderly liquidationof these assets or companies, versus thechaos of an all-out fire sale.— Rick Taft,Business Transfer Alliance—————————M&A activity will begin again in earneststarting as early as second quarter of 2009. Thebanking system is awash with cheap moneyright now, but no one’s lending. It’s that elusiveconfidence factor that lenders need to gain beforethey open the checkbook. The governmentfunding, as controversial as it may be, will bringa level of certainty to potential defaults thatloom on the horizon and have prompted the currentcredit lock in the country. The world as well,finds itself in this situation. Central banksglobally have supported the easing of rates.They have acted in rare cooperation and implementedliberal monetary policies to increaseliquidity. There is a tsunami of liquiditycoming towards us, once that confidencefactor comes around. There is no shortage ofundervalued companies right now. Once thattsunami hits, M&A will spike upwards as dealsget funded.Can the buyers in these transactions expecta continued level of government involvementand “piggyback” onUncle Sam protectingits investment?Notlikely. Even inthe DemocraticadministrationJim ConnorCongress ishaving great difficultypassing along-termbailout in theauto industry.More likely isthe fact thatcontinued protectionismthrough tariffs, taxation etc. resultsin the country declaring the bail out didn’t work,and we look for new alternatives.— Jim Connor, Managing Director,BBK—————————Protectionism gives domestic producers anadvantage in the marketplace so restrictions onforeign competition would seem to be a naturalresult of pouring taxpayer capital back into theUS markets. However, as protectionism tiptoesin - globalization will eventually come to a standstilland it would strangle our competitive ability.The gains from free trade outweigh any losses.Free trade creates more jobs than it destroysand it allows countries to specialize in the productionof goods and services in which they havea comparative advantage.THE PULSE continued on page 98February 2009 ACG > MERGERS & ACQUISITIONS 79
06-08,78-85_ACG.qxd 4/6/09 5:11 PM Page 80COMMUNITY COMMENTARYMaximizing Value through IPFailure to register a company’s trademarks or intellectual property cancost a business in the event of a sale.By Denise Walsh and Robert ShepherdWhen starting a business, most entrepreneursthink about financingthe company, hiring employees andmarketing the business to potential customersand clients. The last thing executives may thinkabout is the sale of the business. However, mostinvestment bankers advise owners to startpreparing for a sale from day one. This meansthat, from the date of its formation, the ventureshould be organized so that a future buyer couldstep in at anytime and seamlessly take over operations.One fairly inexpensive method of preparingfor sale at the outset of a business is toregister the company’s intellectual propertywith the United States Patent and TrademarkOffice (“USPTO”). Registration with the USPTOhelps ensure that the purchase price a businessowner receives upon sale includes thevalue of the company’s goodwill. Some key elementsof goodwill are the company’s name,trademark and/or service mark. For example,the name and symbol of a fast-food chain, aswell as the name of its signature hamburger,may be some of the most valuable assets ofthe business.Failure to register an entity’smark may result in aholdback or even a reductionof the purchase price.We recently represented abusiness owner who sold his company aftertwenty years of operation. The seller failed toregister the company’s mark with the USPTO.Due to the premium being paid for the goodwillof the business, the buyer ran a trademarksearch. The results of the trademark search revealedthat, unbeknownst to the seller, a thirdparty had filed a trademark application with theUSPTO for a very similar mark. Although thecompany attained certain common law rights tothe mark as a result of its use and likely wouldprevail in litigation against the third party, thebuyer was understandably apprehensive. Atclosing, the buyer required that a portion of thepurchase price be placed in escrow pendingresolution of the matter. Any legal fees incurredby the buyer in connectionwith such resolution wereto be reimbursed out ofthe escrowed funds andthe remaining funds, ifany, were to be paid to theseller.In another recent example,a business ownersold her business to a foreignbuyer. Once again,the seller failed to registerthe company’s mark.The company had used themark since inception and,therefore, attained certaincommon law rights to the Denise Walsh“Failure to register an entity’s mark mayresult in a holdback or even a reduction ofthe purchase price.“mark. The seller knew of no third-party claims tothe contrary. Notwithstanding, the buyer requireda reduction in the purchase price due tothe seller’s failure to register the company’smark. In many foreign countries, a person doesnot have any rights in a mark unless he or sheregisters the mark with the appropriate authorities.The buyer was unfamiliar with the protectionsafforded by the common law and was,therefore, uncomfortable with the fact that thebusiness it was buying had not registered itsmark. The buyer also wanted to register the markin its own country and non-registration in theUnited States presented an obstacle to such foreignregistration. From the buyer’s perspective,the company was worth less absent federal registration.The two scenarios describedabove could havebeen avoided if the businessowners registeredthe marks of their respectivecompanies from theoutset of the business.Once a company registersits mark as a federaltrademark, the companyhas nationwide rights inthat mark as relates tothe particular goods orservices for which themark is used. From thedate of registration, thirdparties are placed on constructivenotice of the registrant’s claim of ownershipof the mark. The registering entity cankeep others from using the same mark, as wellas any “confusingly similar” mark, throughoutthe United States. In other words, an entity onthe East Coast of the United States can stopan entity on the West Coast from using an identicalor similar mark. This represents a significantexpansion of a company’s common lawrights, which extend only to the geographicarea in which the entity sells its products orservices.Some additional benefits that flow from fed-80 ACG > MERGERS & ACQUISITIONS February 2009
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Not one to mince words, KPS Capital's Michael Psaros offers a ...

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