MALAYSIA Law and Practice Contributed by: Munir Abdul Aziz, Ee Von Teo and Addy Herg, Wong & Partners
10. Exits 10.1 Types of Exit
10.2 Drag and Tag Rights Drag and tag rights are fairly common in transactions involving private equity funds. The inclusion and spe - cific terms of these rights will vary from one private equity deal to another, depending on negotiations and the unique circumstances of the investment, such as the equity restrictions applicable, the shareholding held by the relevant joint venture partners and the bargaining power of the parties involved. 10.3 IPO Lock-up arrangements are common to restrict share - holders – including private equity sellers (who may be majority stakeholders) – from selling their shares for a specified period after the IPO. The typical lock-up period for private equity sellers varies but it is often approximately 180 days from the IPO date. Lock-up arrangements are typically set out in the underwriting agreement entered into between the portfolio company and the underwriters managing the IPO process. The specific terms relating to the lock- up arrangements will depend on the terms negotiated between the private equity seller, the company and the underwriters.
The common forms of exit for private equity funds in Malaysia are via IPOs or trade sales to strategic inves - tors or to another private equity firm. Dual-track exits are not common in Malaysia. The Malaysian securities regulator would raise queries and likely refuse to process the IPO application if there is also an intention or an ongoing process for outright sale of the same company. Rollover/Reinvest Whether private equity sellers would choose to do the following upon exit would depend on several fac - tors, including the private equity fund’s objectives, the investment opportunities available and market condi - tions. • Rollover – private equity sellers reinvest a portion of the proceeds from the sale of the portfolio com - pany into the acquiring entity or new structure that emerges after the exit. This will align the private equity seller’s interests with those of the new buyer, which may be a strategic buyer or another private equity fund. • Reinvest – private equity sellers invest their pro - ceeds from the sale in other opportunities as part of the diversification of their investment portfolio, and reduce concentration risk by investing in differ - ent industries and asset classes. The private equity fund seller may choose a combina - tion of both, reinvesting a portion while diversifying and investing elsewhere.
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