October 7, 2022
Going Private: Survey of 2021 Sponsor-Backed Deals
Earlier this year, Weil issued a survey highlighting the key terms of 2021 sponsor-backed going private deals. The survey covered 23 U.S. sponsor-backed going private transactions announced between January 1, 2021 and December 31, 2021 with a transaction value of at least $100 million. Here are some of the key findings:
– Despite the increased use of tender offers in 2020, tender offers continued to be a relatively unpopular option for sponsors in 2021, as tender offers were used in only 13% of the surveyed going private transactions (as compared to 45% of the surveyed going private transactions in 2020).
– The “specific performance lite” construct (sometimes referred to as conditional specific performance) continues to be the predominant market remedy with respect to allocating an acquirer’s financing failure and target’s closing risk in sponsor-backed going private transactions. In fact, in a significant increase from last year, the use of the specific performance lite construct increased from 75% of the surveyed going private transactions in 2020 to 91% of the surveyed going private transactions in 2021.
– Full specific performance was not available to any of the targets in the surveyed going private transactions in 2021, which represents a significant decrease as compared to 25% of the surveyed going private transactions in 2020 where full specific performance was available.
– Reverse termination fees appeared in 100% of the surveyed going private transactions in 2021 (as compared to 85% of the surveyed going private transactions in 2020). The mean single-tier reverse termination fee that would have been payable by sponsors in certain termination scenarios was 7.2% of the equity value of the target, which represents an increase from the mean single-tier reverse termination fee of 6.6% of the equity value of the target in 2020.
The survey also found that the use of “go shop” provisions rebounded sharply last year. Go-shops appeared 43% of the surveyed 2021 deals, compared to only 10% of the deals surveyed in 2020.
– John Jenkins