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SRZ 2011 Private Equity Buyer Public Target MA Deal Study

SRZ 2011 Private Equity Buyer Public Target MA Deal Study

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Published by corporaider
Schulte Roth recently released a survey of terms of financial buyers of public companies.
Schulte Roth recently released a survey of terms of financial buyers of public companies.

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Published by: corporaider on Aug 09, 2011
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08/10/2011

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2011 Private EquityBuyer/Public TargetM&A Deal Study
Summer 2011
 
Table of Contents
Page
 
KeyObservationsiSurveyMethodologyiii
Surveyed Transaction Terms
Deal Structure
1One-StepMergervs.Two-StepTenderOffer/Back-EndMerger1
Target Fiduciary Duty Issues
3Go-ShopProvisions3ChangeinTargetBoardRecommendation4
Deal Protections for Buyer 
5MatchandLastLookRights5ForcetheVoteProvision7Break-UpFeePayablebytheTarget8ExpenseReimbursementbytheTarget9TargetsObligationtoPayaTerminationFeeDuringaTailPeriod11
Deal Certainty Provisions for the Target 
12TargetsAbilitytoObtainSpecicPerformanceAgainsttheBuyer12ReverseTerminationFees13SelectBuyerClosingConditions15MarketingPeriods16
Other Selected Deal Points
18
Appendices
 Appendix A — Surveyed Transactions
19
 Appendix B — Additional Charts and Graphs
20
 Appendix C — Break-Up Fees and Reverse Termination Fees
21
2011 Private Equity Buyer/PublicTarget M&A Deal Study
Summer 2011
 
2011 Private Equity Buyer/Public Target M&A Deal Study | Summer
© 2011 Schulte Roth & Zabel LLP. All rights reserved. | i
KeyObservations
Weconductedoursurvey,inpart,toobserveanynotabletrendsorthemesbasedonourreviewofthe25transactions.Pleasenote,however,thatinourexperience,particularlyintermsofdeal-makingpost-2008creditcrisis,thesedealsareoften
 sui generis
duetoanumberoffactors,includingthemarketability/prospectsofthetarget,theregulatoryproleofthetransaction,whethertheagreementistheproductofdedicatedone-on-onenegotiations,aformalauctionorsomewhereinbetween,thestateofcreditmarketsandtherecenthistoricaltrackrecordofthebuyer.Accordingly,undueweightshouldnotbeplacedonthisstudy—itisintendedtohelpidentify“marketpractice”forindividualdealtermsandassistonnegotiations,butdoesnotpurporttoestablishwhatisappropriateforanygiventransaction.Ourkeyobservationsareasfollows:
•
As expected, we observed a “market practice” based on the treatment/inclusion of anumber of the key deal terms
.Forexample:
o
Noneofthedealsincludedatraditional“forcethevote”provisionorprovidedthebuyerwithaclosingconditionregardingappraisalrights.
o
Noneofthedealsstructuredassingle-stepmergersprovidedthebuyerwithanancingclosingcondition.
o
Approximately90%ofthedeals:

Permittedthetargetboardtomakeachangeinrecommendationotherthanspecicallyinconnectionwithasuperiorproposal;

Providedthebuyerwithmatchingrightsand“lastlook”matchingrights;

Includeda“tailprovision”thatappliedintheeventthemergeragreementwasterminatedundercertaincircumstances;and

Had“marketingperiod”provisions.
o
80%ofthedealswerestructuredasone-stepmergers.
o
Approximately75%ofthedealsgavethetargetcompanyalimitedspecicperformancerightthatwasonlyavailableif(i)thebuyer’sclosingconditionstothemergeragreementweresatisedand(ii)thebuyer’sdebtnancingwasavailable.
•
The size of the break-up fee payable by the target company (as a percentage oftarget’s equity value) did not decrease signicantly as the size of the deal tripledor quadrupled. 
Wehadexpectedtondthatasthesizeofthedealincreased,thebreak-upfee(asapercentageofequityvalue)payablebythetargetcompanywoulddecreasesignicantly.
•
The range of the reverse termination fee (“RTF”) payable by a buyer (as a percentageof target’s equity value) varied dramatically.
WehadexpectedtondatighterrangeintheRTFspayablebybuyers—insteadtherangevarieddramaticallyincertaininstances(e.g.,5.51%to38%intheeventofawillfulbreach(thehighestwastheGTCR/ProtectionOnedeal)).

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