Introduction
- In the 2023 Going Private Transaction Study (the “Study”), we have summarized and analyzed 33 going private transactions announced in the calendar year ended December 31, 2023.
- As of the date of this Study, 30 of the going private transactions have closed and three are pending closing.
- For purposes of this Study, a target company is generally considered to have “gone private” if its pre-transaction publicly traded shares were purchased by a privately held financial sponsor, investment company, or similar entity (generically referred to as a “financial buyer”), typically in a leveraged buyout transaction.
- Specifically, this Study analyzes the following items for each of the 33 transactions:
- Transaction background, focusing on management, stockholder, and board involvement;
- Transaction valuation (including transaction multiples and acquisition premiums);
- Deal protection measures and fiduciary provisions;
- Transaction structure and financing; and
- Termination provisions.
Definition of Key Items in the Study
- We used the following methodology to analyze each of the transactions:
– Transaction Value: We calculated transaction value (TV) using data from S&P Capital IQ. TV represents the cost to acquire all common equity, preferred equity, and convertible securities, plus the face value of all outstanding debt, less cash and marketable securities.
– Valuation Multiples: The valuation multiples include TV/Revenue, TV/EBITDA, and TV/EBIT. We derived Revenue, EBITDA, and EBIT figures from S&P Capital IQ as of the latest 12-month (LTM) period prior to announcement.
– Acquisition Premiums: We obtained acquisition premiums from S&P Capital IQ. These premiums are calculated by measuring the percentage change from the offer price per share to the trading prices one day, one week, and one month prior to the transaction announcement date. When there was public disclosure of an auction process prior to signing the agreement, the acquisition premiums were calculated based on the unaffected stock price.
- Note: When analyzing the acquisition premiums, we excluded negative premiums from our high, low, median, and mean calculations, as these transactions involved companies in special or unusual situations and were not considered to be representative of going private acquisition premiums.
Transaction Screening Methodology
- We identified the potential universe of going private transactions through several screens from widely used transaction databases, including LSEG (formerly Refinitiv) and S&P Capital IQ, as well as by reviewing transactions requiring a Schedule 13E-3 filing with the Securities and Exchange Commission (SEC).
- For this Study, we excluded transactions with the following characteristics:
– Transactions involving target companies that have their primary business operations outside of the United States;
– Transactions involving targets with an implied enterprise value under $50 million;
– Transactions for which there was insufficient information regarding terms (generally, smaller transactions);
– “Going-dark” transactions, in which a publicly traded company reduces the number of stockholders of record below a certain threshold (often through reverse stock splits and share repurchases) to avoid SEC filing requirements;
– Transactions involving a privately held, nonfinancial (i.e., strategic) buyer;
– Transactions involving bankrupt, reorganizing, or distressed target companies; and
– Transactions that were canceled or withdrawn prior to the execution of a merger agreement.
Going Private Transactions
Houlihan Lokey Observations
- The number of sponsor-backed going private transactions decreased from 45 transactions in 2022 to 33 transactions in 2023, and continues to be elevated relative to historical activity levels.
– Transaction values in 2023 were considerably lower than transaction values in 2022, with average transaction values of $6.0 billion and $2.6 billion observed in 2022 and 2023, respectively.
– The number of deals with transaction values above $10.0 billion decreased from eight in 2022 to one in 2023, as major strategic players focused efforts on profitability and roll-up or other inorganic growth strategies.
- The median LTM EBITDA multiple decreased from 16.8x in 2022 to 12.8x in 2023, and the median one-day acquisition premium increased from 34.0% in 2022 to 46.3% in 2023.
- The use of auctions remains prevalent, though there was a notable uptick in the use of widespread auctions and public disclosure of the auction prior to transaction signing.
– Of the 32 transactions that featured an auction in 2023, 22 (69%) utilized a widespread auction process, where more than 15 prospective buyers were solicited, representing a meaningful increase from 38% in 2022, when sales processes were much more targeted.
- In 2023, 13 (39%) of the sponsor-backed transactions were club deals involving two or more sponsors, compared to only 27% in 2022, as sponsors seek to fund transactions and fill debt financing gaps.
- The delivery of both debt and equity commitment letters upon signing decreased meaningfully, from 73% in 2022 down to 45% in 2023; however, the percentage of financial sponsors guaranteeing reverse termination fees, if present, increased from 78% in 2022 to 88% in 2023.
– In 2023, there was a notable decline in the use of reverse termination fees, with only 58% of transactions utilizing a reverse termination fee compared to 82% in 2022, which is primarily due to the decrease in "specific performance lite" constructs used to address availability of debt financing at closing.
- Only one transaction in 2023 initiated by a significant or substantial shareholder was subject to a majority of the minority vote, potentially reflecting a reduced prevalence of such provisions amid increased shareholder vocalism in buyout situations and uncertainty of achieving stockholder approval thresholds.
- Overall, negotiation periods lengthened, with final prices often being reduced from the first offer price, reflecting extended diligence periods with management teams, and volatility in debt and equity markets.
– In 2023, 14 (42%) transactions were negotiated for more than 200 days between the initial bid received by the target and the signing of the merger agreement, whereas in 2022 nearly half of transactions progressed from first offer to announcement in less than 100 days.
– In 2023, 39% of transactions had a final deal price below the first offer price, compared to only 24% being revised downward prior to signing in 2022.
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