Monday, October 22, 2007
Two mid-sized private equity transactions have been announced in the last few days. On Friday, Radiation Therapy Services, Inc. announced that the company had agreed to be purchased by Vestar Capital for $32.50 per share plus assumed debt, for a deal valued at $1.1 billion. Then today, Goodman Global, Inc. announced that it has agreed to be acquired by Hellman & Friedman LLC in an all-cash transaction valued at approximately $2.65 billion or $25.60 in cash per share. The credit markets must indeed be loosening if private equity deals are once again being announced, even if it is only deals for a billion or so.
Reviewing both press releases one is struck by the absence of any statement concerning the existence or lack thereof of a financing condition. In the case of RTS the reason why became apparent today when RTS filed its merger agreement. There is actually no financing condition but true to form the deal has a cap on the buyer's liability of $40 million. However, per Section 7.2(b), the termination fee is $25 million plus payment of RTS's fees and expenses up to $3 million if the agreement is terminated by RTS if the buyer has breached the agreement or otherwise refused to close upon satisfaction of the conditions. Anyway, the agreement isn't drafted or structured well on these points, but I couldn't find any conflux of events that would result in RTS receiving more than the $25 million. This is because if RTS terminates the agreement then the buyer is only liable for the $25 million still leaving the question open as to what circumstances would lead to the $40 million cap. I suppose just going to court and leaving the agreement open -- but this is an unpalatable situation for any seller as Harman has recently seen to its detriment.
And this explains why there is no financing condition statement in the RTS press release. The parties probably realize that the reverse termination fee is effectively a financing condition. Win one for truth in advertising. Other terms of the RTS agreement are a $25 million termination fee and a seller obligation to pay the buyer's fees up to $3 million if the deal is voted down. There is also a no-shop (whither the go-shop so soon?).
I'll have more on these two deals once the Goodman Global merger agreement is filed.