USA Law and Practice Contributed by: Vijay Sekhon, Brien Wassner, John Godfrey and Justin Macke, Sidley Austin LLP
7. Takeovers 7.1 Public-to-Private
Disclosure schedules remain central and broad data room disclosure is not customary in US deals. 6.10 Other Protections in Acquisition Documentation Beyond RWI (which is widespread in private equity deals, as noted in 6.9 Warranty and Indemnity Pro- tection ), several additional protections are common. • Restrictive covenants – Non-compete and non- solicitation clauses apply to management and, in many cases, to private equity sellers (although non-competes are limited to a list of prohibited acquisition targets for certain private equity sellers reluctant to agree to a non-compete). • Special indemnities – For significant known and uninsured risks, typically capped and time-limited. • Clawbacks – Less common, but may be agreed in earn-out or rollover structures. • Intentional fraud carve-outs – Always preserved and excluded from liability caps to the extent related to the representations and warranties in the purchase agreement. 6.11 Commonly Litigated Provisions Litigation is not common in private equity transac - tions. Earn-outs are the most commonly litigated provisions, often involving disputes over whether the buyer operated the business to maximise the earn-out or whether performance metrics were fairly applied. Other recurring issues include: • post-closing purchase price adjustments and accounting interpretation; • allegations of fraud; • enforcement of restrictive covenants (eg, non-com - pete violations); and • termination disputes involving MAE claims or fail - ure to satisfy closing conditions. Delaware courts generally enforce provisions as writ - ten but require clear language. Sponsors are increas - ingly investing in up-front drafting discipline to miti - gate exposure.
Public-to-private transactions involving private equity bidders are a recurring feature of the US deal land - scape, particularly in market environments where pub - lic valuations are depressed or capital markets are volatile. After a quieter period in 2022 and 2023, activ - ity began to rebound in 2024 with sponsors targeting undervalued or underperforming public companies, often with turnaround or carve-out theses. Such activ - ity stalled in early 2025 due to macro-economic and geopolitical uncertainty. Board Role and Fiduciary Oversight The target company’s board of directors plays a central role in public-to-private transactions. In line with fiduciary duties under Delaware law, the board is expected to assess the transaction independently, with a view towards maximising shareholder value. Where there is any potential management participa - tion (eg, rollover equity), the board typically forms a fully independent special committee to evaluate and negotiate the deal. The committee often retains its own legal and financial advisers and will generally seek a fairness opinion. Delaware courts apply enhanced scrutiny in these deals, especially where insiders are involved. A robust and well-documented process is essential to with - stand potential post-closing litigation. Documentation and Agreements US public-to-private transactions are governed by the merger agreement, which includes the key commer - cial terms, representations, covenants, deal protec - tions (eg, no-shop provisions, break fees) and closing conditions. Where the private equity bidder has a pre-existing relationship with the company, such as a PIPE invest - ment, board seat or commercial partnership, proce - dural protocols and careful conflict management are expected.
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