Weil, Gotshal 2012 survey of sponsor-backed going private transactions

Weil, Gotshal & Manges recently published its sixth survey of sponsor-backed going private transactions, which analyzes and summarizes the material transaction terms of going private transactions involving a private equity sponsor in the United States, Europe, and Asia-Pacific. (We covered last years survey here.)

The survey covers 40 sponsor-backed going private transactions with a transaction value (i.e., enterprise value) of at least $100 million announced during calendar 2012. Twenty-four of the transactions involved a target company in the United States, 10 involved a target company in Europe, and 6 involved a target company in Asia-Pacific.

Here are some of the key conclusions Weil draws from the survey:

• The number and size of sponsor-backed going private transactions were each lower in 2012 than in 2011 and 2010; . . . .
• Specific performance "lite" has become the predominant market remedy with respect to allocating financing failure and closing risk . . . . 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 reverse termination fees of roughly double the company termination fee becoming the norm.
• . . . 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.

MAW