Mitigating risk

Author: | Published: 1 Sep 2007

Public to private transactions are now commonly seen in management buyouts by private equity firms. Due to the diverse investor base and regulatory requirements that public companies are subject to, these transactions are usually carried out through a takeover offer.

When a bidder sets its sights on a public target and would like to take it private through a takeover offer, the biggest risk (presuming that it is a good idea in the first place) is that this goal is not achieved due to a failing in the deal structure or a successful competitive bid.

A bidder can use a number of mechanisms to reduce uncertainty in relation to the acceptance of its offer, for example, building a stake in the target by acquiring shares, imposing break fees and a period of exclusivity, seeking a recommendation from the target's board or offering incentives to the management team. More topical mechanisms...