Private Equity Newsletter
April 03, 2018
Read the latest edition of the "Private Equity Newsletter." This edition of Dechert’s Private Equity Newsletter reviews recent developments in private equity worldwide, including:
- Recent Developments in Acquisition Finance
- Navigating the Legal Complexities of a Digital Health Transaction
- How Should US Sellers and Buyers of Businesses View European “Certain Funds”?
- Snapshot of Tax Act Changes for PE Funds and their Portfolio Companies
- Environmental Due Diligence and Risk Management in a Seller’s Market
- Delaware Appraisal Litigation: The Court of Chancery Holds That a Company’s Unaffected Market Price Constitutes “Fair Value”
Recent Developments in Acquisition Finance
Did you just commit to a financing without realizing it?
The question of when parties to a potential transaction actually become bound to each other is obviously an important one, and sometimes the answer can be surprising, or less than entirely clear. A recent Texas Court of Appeals decision demonstrates, in an acquisition context, that even a sophisticated party that has taken all the usual steps to avoid becoming bound prior to signing up definitive documentation may find itself inadvertently bound to a contract prior to such time. The case is a reminder to parties negotiating acquisitions and acquisition financings to practice a touch of extra prudence in the course of negotiation in order to avoid this inadvertent result.
Navigating the Legal Complexities of a Digital Health Transaction
Digital health is now at the forefront of deal activity in the life sciences and health care sector. The recent acquisition by Johnson & Johnson subsidiary Apsis of France-based Orthotaxy, a software developer at the cutting edge of robotic-assisted orthopedic surgery, and the US$118 million equity funding announced earlier today of privately held prostate surgery robotics company Procept BioRobotics, are just the latest in a series of digital health transactions that are transforming the life sciences and health care industries.
How Should US Sellers and Buyers of Businesses View European “Certain Funds”?
As M&A practitioners who do deals in Europe as well as in the U.S. know, the certainty of banking commitments is stronger as a rule in Europe than in the U.S. So much so that, given the choice, it can be a factor in the decision whether to do the financing in Europe or in the U.S. If the seller is in Europe, European “certain funds” will usually be stipulated as a requirement in any sales process. Even if the seller is in the U.S., a bidder has been known to try to distinguish his bid by demonstrating a European level of banking certainty.
Snapshot of Tax Act Changes for PE Funds and their Portfolio Companies
President Trump signed into law tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”) on December 22, 2017. The Tax Act implemented the most far-reaching changes to the Internal Revenue Code (the “Code”) since the Tax Reform Act of 1986. While the Tax Act lowered the corporate tax rate to 21%, other changes made by the Tax Act will also affect the after-tax profitability of private equity portfolio companies and impact how sponsors structure deals and conduct diligence for future transactions.
Environmental Due Diligence and Risk Management in a Seller’s Market
Notwithstanding the recent volatility in the U.S. stock market, mergers and acquisitions (M&A) activity should be significant in 2018. With large corporations repatriating cash, perhaps for acquisitions, due to the change in tax laws, and the fact that private equity is sitting on significant dry powder, we are likely to continue to experience a seller’s market. Although the latent nature of many environmental conditions means that environmental due diligence in M&A transactions is never perfect, conducting environmental due diligence and managing environmental risks in a seller’s market present particular challenges.
Delaware Appraisal Litigation: The Court of Chancery Holds That a Company’s Unaffected Market Price Constitutes “Fair Value”
In a recent appraisal decision, Verition Partners Master Fund Ltd. v. Aruba Networks, Inc. (Aruba Networks), the Delaware Court of Chancery awarded 30% less to the shareholders than they would have received had they not sought an appraisal. In Aruba Networks, the Court of Chancery followed recent Delaware Supreme Court guidance and held that the market price of the company’s stock prior to the announcement of the merger (the “unaffected market price”) was the “best evidence” of the value of the entity as a going concern. Although the Vice Chancellor noted that unaffected market price was not the only relevant consideration, this opinion ought to give stockholders pause in their decision to seek appraisal for shares of widely traded, public company stock.
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