Weil, Gotshal & Manges LLP recently conducted our fifth annual survey of sponsor-backed going private transactions. Weil surveyed 60 sponsor-backed going private transactions announced from January 1, 2010 through December 31, 2010 with a transaction value (i.e., enterprise value) of at least $100 million (excluding target companies that were real estate investment trusts).
Thirty-nine of the surveyed transactions in 2010 involved a target company in the United States, thirteen involved a target company in Europe and eight involved a target company in Asia-Pacific. The publicly available information for certain surveyed transactions did not disclose all data points covered by our survey; therefore, the charts and graphs in this survey may not reflect information from all surveyed transactions.
With a significant rebound in the availability of debt financing for new acquisitions, 2010 was a strong year for sponsor-backed going private transactions in the United States. Thirty-nine sponsor-backed going private transactions in the United States were announced over the course of 2010.
A number of market and legal trends are identifiable based on this survey. These include:
- When compared to 2009, 2010 witnessed a 335% increase in aggregate transaction value and a 179% increase in the number of announced transactions. However, neither the aggregate transaction value nor the number of transactions announced reached the level of the pre-credit crisis peak in 2007.
- Due to the strong credit markets, debt-to-equity ratios in sponsor-backed going private transactions rebounded in 2010. Equity accounted for an average of 51% of acquiror capitalization for transactions between $100 million and $1 billion in value and 36% of acquiror capitalization for transactions greater than $1 billion in value.
- No sponsor-backed going private transaction in 2010 had a financing out.
- The go-shop provision continued to be a common feature of going private transactions in 2010 with 51% of surveyed transactions including this form of post-signing market check. Continuing a trend from 2008, sponsors were again resistant to giving a significantly reduced go-shop break-up fee (67% of the reduced go-shop break-up fees were in excess of 50% of the no-shop break-up fee).
- Although not nearly as prevalent as in 2009, the tender offer was once again utilized in 2010, continuing a trend that started in 2007. Fifteen percent of the surveyed transactions in 2010 utilized a tender offer structure (compared to 36% of the surveyed transactions in 2009).
- Excluding the “all-equity” deals, some form of a reverse break-up fee appeared in 90% of the surveyed transactions in 2010 compared to 77% in 2009.
- Three different reverse break-up fee constructs were used in the surveyed transactions for 2010: a “pure option” reverse break-up fee (21% of the surveyed transactions with a reverse break-up fee), a reverse break-up fee for a financing failure (45% of the surveyed transactions with a reverse break-up fee), and a two-tier reverse break-up fee (34% of the surveyed transactions with a reverse break-up fee).
- Specific performance provisions enforceable against the buyer were again common in 2010. 77% of the surveyed transactions in 2010 permitted the seller to seek specific performance against the buyer in certain circumstances rather than be limited to a reverse break-up fee or monetary damages.
- Within the reverse break-up fee for financing failure construct, 73% of the surveyed transactions with a transaction value in excess of $1 billion and 12.5% of the transactions with a transaction value below $1 billion provided the target with the limited right to specifically enforce the equity financing only in the event that the debt financing is available, the buyer would otherwise be required to close and the closing would occur if the equity and debt financing were funded (i.e., specific performance lite).
- Similar to what we found in 2009, the MAE definitions for the 2010 surveyed transactions continue to be target-friendly with several exceptions for changes that would not expressly constitute an MAE.
- Despite the increase in transaction value of the surveyed transactions, the percentage of transactions constituting club deals involving two or more private equity sponsors was once again small when compared to the pre-credit crisis era. Only 15% of the 2010 transactions constituted a club deal compared to 37% of the 2007 transactions.
The full report includes detailed findings from Europe, Asia and the Pacific region, and is available here.