USA Law and Practice Contributed by: Vijay Sekhon, Brien Wassner, John Godfrey and Justin Macke, Sidley Austin LLP
5. Structure of Transactions 5.1 Structure of the Acquisition
• Regulatory and Licensing – For regulated indus - tries, such as healthcare, education, defence or financial services, licensure, accreditation and compliance with agency-specific rules (eg, FDA, FINRA, DOE) and compliance with international trade laws are reviewed. Failure to maintain good standing or change-of-ownership approval require - ments can directly impact closing readiness. • Litigation and Disputes – Current or threatened liti - gation, government investigations and settlement history are analysed for contingent liability and reputational impact. • Tax Compliance – Review includes historical filings, transfer pricing, loss carryforwards, employee clas - sification (for payroll taxes) and any open audits. Diligence also informs post-closing structuring and risk allocation for tax indemnities. • Environmental – Applicable primarily to industrial, real estate and infrastructure targets. Site assess - ments, remediation obligations and legacy liability are examined, particularly under state-specific environmental regimes. 4.2 Vendor Due Diligence Vendor due diligence (VDD) is not a common feature of US sponsor-led exits. While not as formalised or common as Europe, VDD is occasionally used to streamline processes, reduce bidder friction, and manage disclosure proactively. Sponsors in these lim - ited circumstances use VDD to control the narrative, reduce management distraction, and facilitate RWI underwriting. It can be helpful in situations where tim - ing is compressed, or where the sellers are managing complex information flow/complicated business. That being said, sell-side legal advisers typically prepare indexes, Q&A logs and diligence trackers while buyer legal advisers typically prepare legal red-flag reports and related executive summaries. Reliance is not typical in US VDD processes. While sell-side legal advisers usually disclaim reliance, sell - ers may in certain circumstances grant limited reliance rights to the winning bidder (although very rare), often capped and negotiated.
Most US private equity deals are structured as equity or asset purchases for private targets, or statutory mergers for public companies (or private companies with a large number of shareholders). Public takeovers typically use a one-step merger or two-step tender offer plus merger, and Delaware law enables expe - dited closing if majority shares are tendered. Public Versus Private Target Structures Public deals involve tender offers or one-step merg - ers using a shell vehicle, often governed by share - holder approval thresholds and securities laws, with limited conditionality and no post-closing recourse. For private targets, transactions are governed by bespoke purchase agreements with negotiated repre - sentations, warranties, and limited if any indemnities, though market norms increasingly push towards no recourse and RWI-backed structures. Auction Versus Negotiated Sales In competitive auctions, sellers typically set the terms and distribute seller-friendly draft agreements. Terms are “public-style”, with minimal indemnity, broad dis - closures, and limited buyer conditions. Private equity buyers in auctions often accept no financing outs, compressed timelines, and seller-friendly documents to stay competitive. In contrast, negotiated (propri - etary) deals provide buyers with greater flexibility to negotiate economic terms, including earn-outs, broader warranties, tailored covenants and for private transactions limited indemnities. Founder-owned and management-heavy businesses tend to permit more customised structures. 5.2 Structure of the Buyer US private equity funds nearly always acquire through a dedicated acquisition vehicle, not the fund itself. This special purpose vehicle (SPV), often referred to as “BidCo” or “Newco”, is formed specifically for the transaction and capitalised with a mix of equity and third-party debt at closing. BidCo is usually a Delaware LLC or corporation. In most cases, an additional holding company layer (“HoldCo”) is inserted above BidCo to permit structur -
693 CHAMBERS.COM
Powered by FlippingBook