The number and size of US sponsor-backed going private transactions were each lower in 2012 than in 2011 and 2010, according to a report by law firm Weil, Gotshal & Manges.
However, when excluding the soft first quarter of 2012, deal activity was on par with such earlier years.
Specific performance “lite” has become the predominant market remedy with respect to allocating financing failure and closing risk in sponsor-backed going private transactions. Specific performance lite means that the target is only entitled to specific performance to cause the sponsor to fund its equity commitment and close the transaction in the event that all of the closing conditions are satisfied, the target is ready, willing, and able to close the transaction, and the debt financing is available.
Reverse termination fees appeared in all debt-financed going private transactions in 2012, with an average single-tier reverse termination fee equal to 6.26 per cent of the equity value of the transaction. Although outliers remain, company termination fees are customarily in the range of three to four per cent of the equity value of the transaction, and reverse termination fees have trended consistently around six to seven per cent of the equity value of the transaction, with reverse termination fees of roughly double the company termination fee becoming the norm.
As was the case in 2011, no sponsor-backed going private transaction in 2012 contained a financing out (i.e., a provision that allows the buyer to get out of the deal without the payment of a fee or other recourse in the event debt financing is unavailable).
Some of the financial-crisis-driven provisions, such as the sponsors’ express contractual requirement to sue their lenders upon a financing failure, have diminished in frequency. However, the majority of deals are silent on this, and such agreements may require the acquiror to use its reasonable best efforts to enforce its rights under the debt commitment letter, which could include suing a lender.
Go-shops remain a common (albeit not predominant) feature in going private transactions, and are starting to become more specifically tailored to particular deal circumstances.
Tender offers continue to be used in a minority of going private transactions as a way for targets to shorten the time period between signing and closing.
Increasingly, transaction agreements in 2012 included customized deal provisions tailored to the specific facts and circumstances of each deal.
On the European front, after a slow 2011, 2012 saw the UK return to its prior status as the most popular market for sponsor-backed going privates in Europe, with 50 per cent by volume and 45 per cent by value of announced deals in 2012 involving UK-listed targets.
Schemes of arrangement remain the going private structure of choice for UK-incorporated targets due to the ability to acquire 100 per cent of the target with only 75 per cent shareholder approval in a shorter period of time (offer requires 90 per cent acceptance and for the bidder to subsequently follow the statutory squeeze-out regime) and to avoid stamp duty (i.e., transfer taxes payable on an offer).
In 2012, total private equity activity in Asia-Pacific decreased more than 40 per cent from 2011 and approximately 10 per cent from 2010. There was also a decrease in the number and transaction value of surveyed sponsor-backed going private transactions in the region. Six going private transactions form part of our survey this year, and constitute about 5 per cent of private equity activity, by deal value, in the region.
