Sponsor-Backed Going Private Transactions

Douglas P. Warner is a partner and head of US Private Equity and Hedge Fund practices at Weil, Gotshal & Manges LLP. This post is based on the methodology and key findings of a Weil survey; the full publication is available here. The previous edition of this survey is available here.

Research Methodology

Weil surveyed 40 sponsor-backed going private transactions announced from January 1, 2012 through December 31, 2012 with a transaction value (i.e., enterprise value) of at least $100 million (excluding target companies that were real estate investment trusts).

For United States transactions to be included in the survey, the transaction must have closed or such transaction remains pending.

Twenty-four of the surveyed transactions in 2012 involved a target company in the United States, 10 involved a target company in Europe, and 6 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.

The 40 surveyed transactions included the following target companies:

United States Europe
Ancestry.com Inc. 3W Power Holdings SA (Germany)
Archipelago Learning, Inc. Arena Leisure plc (UK)
Benihana Inc. Douglas Holding AG (Germany)
Deltek, Inc. EKO Holding SA (UK)
Duff & Phelps Corp. GlobeOp Financial Services SA
eResearch Technology, Inc. Goals Soccer Centres plc (UK)
Great Wolf Resorts, Inc. Kewill plc (UK)
IntegraMed America, Inc. Marcolin SpA (Italy)
Interline Brands, Inc. Mediq NV (Netherlands)
ISTA Pharmaceuticals, Inc. Misys plc (UK)
JDA Software Group, Inc.
Knology, Inc. Asia
Mediware Information Systems, Inc. Adampak Limited (Singapore)
MModal Inc. Adventa Berhad (Malaysia)
P.F. Chang’s China Bistro, Inc. Discovery Metals Limited (Australia)
Par Pharmaceutical Companies, Inc. Luye Pharma Group Ltd. (Singapore)
Sun Healthcare Group, Inc. Nexcon Technology Co. Ltd. (S. Korea)
The Edelman Financial Group Inc. Spotless Group Limited (Australia)
The Talbots, Inc.
TNS, Inc.
TPC Group Inc.
Union Drilling, Inc.
Westway Group, Inc.
Young Innovations, Inc.

Key Conclusions

The following is a list of key conclusions that we identified in our review of the 2012 US surveyed deals. The Highlights of 2012 section contains additional analysis and information with respect to the 2012 surveyed deals.

  • The number and size of sponsor-backed going private transactions were each lower in 2012 than in 2011 and 2010; 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% of the equity value of the transaction. Although outliers remain, company termination fees are customarily in the range of 3-4% of the equity value of the transaction, and reverse termination fees have trended consistently a round 6-7% 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. There are two important developments with respect to tender offers that impact sponsors, and these are discussed in the New and Noteworthy section of this survey.
  • Increasingly, transaction agreements in 2012 included customized deal provisions tailored to the specific facts and circumstances of each deal. As discussed in the New and Noteworthy section, this trend has continued in 2013.

The above-mentioned Highlights and New and Noteworthy sections, and detailed findings regarding Europe and Asia-Pacific, are available here.

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