Weil, Gotsha & Manges, LLP conducted a survey of 40 sponsor-backed going private transactions which were announced from January 1, 2012 to December 31, 2012, where the transaction value was at least $100 million. This did not include target companies that were real estate investment trusts. US transactions included in the survey either closed or are pending closing.
Out of the 40 transactions, 24 of them involved a target company in the US. Ten of them involved a target company in Europe and six involved a target company in Asia-Pacific. The information that was available to the public for certain surveyed transactions did not disclose all the data points covered by the survey. As such, the charts and graphs in the survey will not reflect information from all surveyed transactions.
Following is a list of key findings that were identified in the review of the 2012 US survey deals:
- The number and size of sponsor-backed going private transactions were both lower in 2012 when compared to 2011 and 2010. However, if you exclude the soft first quarter of 2012, deal activity was equivalent to 2011 and 2010.
- The predominant market remedy as it relates to allocating financing failure and closing risk in sponsor-backed going private transactions is specific performance “lite.” Specific performance lite is when the target is only entitled to specific performance to cause the sponsor to fund its equity commitment and close the transaction when all the closing conditions are satisfied; the target is ready, willing and able to close the transaction; and the debt financing is available.
- All debt-financed going private transactions in 2012 had reverse termination fees. The average single tier reverse termination fee was 6.26 percent of the equity value of the transaction. Generally, company termination fees are in a 3 to 4 percent range of the equity value of the transaction and reverse termination fees range from 6 to 7 percent of the equity value of the transaction.
- None of the sponsor -acked going private transactions in 2012 contained the financing out provision. This is a provision which allows the buyer to get out of the deal without paying a fee or other recourse in the event debt financing is not available.
- Some of the provisions which were driven by the financial crisis, such as the sponsor’s express contractual requirement to sue their lenders upon a financing failure, have decreased in frequency. However, most of the deals are silent on this. Acquirors in a deal where this provision is silent will have to sue the lender by enforcing its rights under the debt commitment letter.
- Go shops continue to be a common feature in going private transactions and are becoming more specifically tailored to the deal circumstances.
- A minority of going private transactions continue to use tender offers so that targets can shorten the time period between signing and closing. There is a new section in the survey that discusses two important developments in regards to tender offers that impact sponsors.
- Also discussed in the new section of the survey, transaction agreements in 2012 included an increased amount of customized deal provisions tailored to the specific facts and circumstances of each deal. This trend has continued into 2013 deals.
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