DealLawyers.com Blog

Late last year, Weil issued a survey highlighting the key terms of 2020 sponsor-backed going private deals. The survey covered 20 U.S. sponsor-backed going private transactions announced between January 1, 2020 and December 31, 2020 with a transaction value of at least $100 million. Here are some of the key findings:

– As was the case in 2019 and other prior recent years, none of the surveyed going private transactions in 2020 contained a financing out (i.e., a provision that allows the acquirer to get out of the deal without the payment of a fee or other recourse to seller in the event the acquirer’s debt financing is unavailable). This type of provision, which first emerged in connection with the financial crisis, was more commonly used in the past. As noted below, specific performance lite continues to be the predominant market remedy with respect to allocating acquirer’s financing failure and seller’s closing risk.

– While the appearance of the specific performance lite construct decreased from 93% of the surveyed going private transactions in 2019 to 75% (15 of 20) of the surveyed going private transactions in 2020, specific performance lite continued to be the predominant market remedy with respect to allocating acquirer’s financing failure and seller’s closing risk in sponsor-backed going private transactions. Full specific performance was available to targets in 25% (5 of 20) of the surveyed going private transactions in 2020, which represents an increase as compared to 7% of the surveyed going private transactions in 2019 where full specific performance was available. In the 5 transactions where full specific performance was available, 2 had a full equity backstop.

– The reverse termination fee construct appeared in 85% (17 of 20) of the surveyed going private transactions in 2020 (as compared to 100% of the surveyed going private transactions in 2019).

– The mean single-tier reverse termination fee that would have been payable by sponsors in certain termination scenarios was 6.6% as a percentage of the equity value of the target, which represents a slight decrease in the mean single-tier reverse termination fee of 6.7% as a percentage of the equity value of the target in 2019. The mean target termination fee was 3.1% as a percentage of equity value of the target, which is a slight decrease of the mean target termination fee of 3.2% as a percentage of the equity value of the target in 2019.

Interestingly, the survey says that the use of go-shops declined sharply in 2020. Only 10% of the deals surveyed included a go-shop, as compared to 60% of the transactions surveyed in 2019. Tender offers were also more common in 2020. Tender offers were used in 45% of the surveyed going private transactions in 2020. No 2019 deals were structured as tenders and only 18% of 2018 deals incorporated a tender offer.

– John Jenkins