Spin-Outs In M&A: Bridging The Valuation Gap

While companies are reportedly sitting on piles of cash (so much so, that it has become somewhat of a political issue with Canadian cabinet ministers and the Governor of the Bank of Canada urging companies to spend this "dead money"), one might expect such companies to be free spenders when it comes to acquisitions. However, persistent economic uncertainty has made potential purchasers reluctant to spend accumulated cash on acquisitions, and we expect this trend to continue until an economic recovery is firmly established.

In the M&A area, this reluctance to overspend is often coupled with the fact that a target company may have, in addition to its desirable assets, other assets that are less attractive, at least from the prospective acquirer's perspective. This is particularly true in the resource sector where smaller exploration companies will often have a number of properties at different stages of development. If one or two properties prove to be promising and