Private mergers and acquisitions (M&A) transactions have witnessed a significant increase in volume and value globally since the 1990s. Alongside this surge, private equity (PE) purchases have emerged as a prominent aspect of the M&A industry. While industrial or trade enterprises primarily focus on expansion and diversification, private equity firms approach acquisitions with the goal of reselling the entity for substantial profits. Understanding the nuances and procedures involved in private M&A is crucial for successful transactions.
Corporate Entities and Acquisition Methods
In private acquisitions, the two main corporate entities involved are limited liability companies (LLCs) and corporations. While there are typically no restrictions on the transfer of shares under corporate law, certain limitations may exist in the target's organizational documents or shareholders' agreements. Foreign buyers should be aware of potential restrictions imposed by the US government on national security grounds. The Committee on Foreign Investment in the United States (CFIUS) reviews acquisitions or investments that result in a transfer of control over a US business to a foreign person.
The most common ways to acquire a private company are through purchasing its outstanding shares, purchasing its assets, or merging under state law. Each method has its advantages and disadvantages. Share purchases are generally less complicated and have lower closing costs compared to asset purchases. They also allow for business continuity and easier enforcement of indemnification claims. Mergers offer flexibility in terms of mixed stock and cash consideration and can be either forward or reverse mergers. Asset purchases enable the acquisition of specific assets and liabilities, avoiding complex dealings with minority shareholders.
Preliminary Agreements: Setting the Stage
Before finalizing a contract, buyers and sellers often enter into preliminary agreements to establish key terms and protect confidential information. Letters of intent (LOIs) outline the transaction's essential aspects, including valuation, purchase price adjustments, conditions precedent, and key representations and warranties. While LOIs are generally non-binding, certain provisions, such as exclusivity and allocation of costs, can be legally enforceable.
Exclusivity agreements ensure that the seller does not engage with other potential buyers during a specified period. Non-disclosure agreements (NDAs) safeguard the target's confidential information and regulate the negotiation process. They establish restrictions on the potential buyer's use and disclosure of information and may include provisions on confidentiality, non-solicitation, and information return or destruction.
Asset Sales: Transferring Assets and Liabilities
In asset sales, explicit identification of assets and liabilities to be assumed by the buyer is crucial. However, under the doctrine of "successor liability," certain liabilities may transfer to the buyer by operation of law, regardless of the negotiated provisions. Examples include bulk sales laws liabilities, liabilities attached to fraudulent conveyance, and environmental liabilities. To mitigate potential risks, buyers can seek contractual indemnities from the seller. Sellers must carefully consider the liabilities they retain after the transaction to avoid future legal complications.
Private Equity Firms: A Different Approach
Private equity firms adopt a distinct business model compared to industrial or trade enterprises. Their primary focus is on making a smart purchase and increasing the acquisition's value over a specific period for a profitable exit. Their strategy involves extensive due diligence, relationship-oriented acquisition approaches, and a focus on governance and ownership post-transaction. Private equity firms have a finite timeline and establish an exit goal within an estimated timeframe.
Finding M&A Transaction Data
Various resources provide valuable information on M&A transactions. FII Online offers advanced search options based on CUSIP, company name, or date ranges. Nexis Uni provides Company & Financial data, including some SEC Platinum data. PrivCo specializes in financial and market intelligence on privately held companies, private equity, venture capital, and M&A markets. SEC advanced filings search allows users to access DEF14M filings and other relevant SEC documents. Subscription databases like Refinitiv/Thomson Reuters, Deal Intelligence, BVR: Deal & Market Data, Bureau van Dijk ZEPHYR, Capital IQ, Dealogic, Mergermarket, and Mergr offer comprehensive M&A transaction data and analysis.
The Importance of Deep Research
Deep-dive research is essential for extracting relevant facts and ideas from multiple sources. By combining information from various articles, researchers gain a comprehensive understanding of private M&A transactions. Each article contributes unique insights, and systematic ordering ensures the coherence of the final article.
Conclusion
Private mergers and acquisitions involve complex processes, from understanding corporate entities and acquisition methods to navigating preliminary agreements and asset transfers. Private equity firms bring their unique approach to M&A, focusing on smart acquisitions and profitable exits. Accessing reliable M&A transaction data is crucial for informed decision-making. By conducting thorough research and utilizing various resources, professionals can navigate the intricacies of private M&A transactions with confidence.
