Investigating strategic alternatives has been a very popular exercise for public companies in the last few years. Demand for solid cash-flowing businesses has been at an all-time high, fueled by record levels of private equity that need to be put to work, and readily available debt financing. It is little wonder that owners and operators want to test the market value of their businesses from time to time. As a result, public announcements of investigations of strategic alternatives are being made at what seems to be an accelerating pace. And for every such public announcement, there likely are many more private investigations under way.
Several critical issues present themselves at the very early stages of an investigation of strategic alternatives that could have a very significant impact if a transaction is pursued. In many cases, the very early stages of this process consist of nothing more than casual conversations with one or more potential strategic partners rather than any formal comprehensive investigation. In these cases, close monitoring by counsel may not occur, so it is particularly important for directors and officers to be aware of the legal considerations that most often come to bear. The following analyzes some of the legal constraints and practical considerations most relevant to directors and officers who are engaged in such very early-stage discussions regarding strategic alternatives.
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