casemark/analyzing-going-private-transactions

Analyzing Going Private Transactions

Evaluates management buyouts and take-private proposals with fairness assessment, minority squeeze-out mechanics, and appraisal rights analysis.

When To Use

• A public company announces an MBO, leveraged buyout, or take-private proposal
• A controlling shareholder proposes a squeeze-out merger or tender offer followed by short-form merger
• An activist position exists in a target subject to a going-private bid and you need to assess whether to support, oppose, or seek appraisal
• A special committee has been formed and you need to evaluate the independence and process quality
• Evaluating whether to tender, vote against, or pursue statutory appraisal rights

Inputs To Gather

• Transaction documents: Merger agreement, Schedule 13E-3, preliminary/definitive proxy statement, tender offer statement (Schedule TO), fairness opinion
• Pricing data: Unaffected stock price (30/60/90-day VWAPs before leak or announcement), 52-week high/low, analyst price targets, comparable transaction multiples
• Financial projections: Management projections provided to the special committee and/or fairness opinion advisor; any divergence between projections given to lenders vs. shareholders
• Ownership structure: Insider ownership percentage, rollover equity commitments, voting agreements, support agreements, affiliates of the buyer group
• Process details: Timeline of negotiations, number of potential bidders contacted, go-shop or market-check provisions, matching rights, termination fee (as % of equity value)
• Governance context: Board composition, special committee members, financial and legal advisors to the special committee, any conflicts of interest [VERIFY advisor independence disclosures]

Workflow

1. Map the deal structure

   • Identify whether the transaction is a one-step merger, two-step tender offer + short-form merger, or reverse stock split squeeze-out
   • Determine the buyer group composition: management rollover, sponsor equity, debt financing commitments
   • Note any contingent value rights (CVRs), earnouts, or mixed consideration

2. Evaluate fairness of price

   • Calculate premium to unaffected price (use date before earliest rumor or leak, not announcement date)
   • Benchmark against precedent going-private premiums in the same sector
   • Compare implied multiples (EV/EBITDA, P/E, EV/Revenue) to comparable public companies and recent M&A transactions
   • Assess whether management projections shared with the board differ from those provided to financing sources — divergence is a red flag for fairness challenges
   • Review the fairness opinion methodology: DCF assumptions (discount rate, terminal growth rate, projection period), selected comparable companies, precedent transactions used

3. Analyze special committee process

   • Confirm committee independence: no financial ties to the buyer group, no continued employment or rollover arrangements
   • Evaluate whether the committee had authority to say "no," explore alternatives, and hire independent advisors
   • Check for a genuine market check or go-shop period — assess duration (typically 30–45 days), restrictions on providing information to competing bidders, and matching rights
   • Flag any "don't-ask-don't-waive" standstill provisions that may have suppressed competing bids [VERIFY — some jurisdictions have restricted enforceability]

4. Assess minority protections and squeeze-out mechanics

   • Determine whether the deal is conditioned on a "majority of the minority" vote (MoM condition)
   • If no MoM condition, evaluate whether the controlling shareholder's voting power alone can approve the merger
   • For two-step deals, identify the short-form merger threshold (typically 90% in Delaware [VERIFY state-specific threshold]) and whether the top-up option or subsequent offering period is used to reach it
   • Review any non-waivable appraisal rights under applicable state law

5. Evaluate appraisal rights and litigation potential

   • Determine statutory appraisal availability and perfection requirements (demand timing, share-holding requirements, payment/withdrawal mechanics) [VERIFY under governing state statute]
   • Estimate potential appraisal fair value using DCF of management projections, accounting for any synergies or cost savings the buyer expects
   • Assess likelihood of appraisal petition success: courts increasingly scrutinize deal-price-minus-synergies as fair value (see Dell, Aruba, Jarden line of cases) [VERIFY current judicial trends]
   • Consider fiduciary duty claims: entire fairness applies absent both an independent special committee and MoM approval (Kahn v. M&F Worldwide / MFW framework) [VERIFY controlling-shareholder status]

6. Formulate position recommendation

   • For activist/event-driven funds: quantify the spread between current trading price, deal price, and estimated appraisal fair value
   • Model downside scenario if the deal breaks (reversion to unaffected price minus any deal-break discount)
   • Assess timeline and carrying costs for appraisal proceedings (typically 2–4 years with statutory interest accruing) [VERIFY current statutory interest rate]
   • Recommend: tender/vote in favor, oppose and seek higher bid, or pursue appraisal

Output

• Transaction Summary: Deal structure, buyer group, consideration, implied premiums, and key multiples
• Fairness Assessment: Premium analysis, valuation benchmarking, fairness opinion critique, projection divergence findings
• Process Evaluation: Special committee independence rating, market-check adequacy, deal protection analysis
• Minority Protection Analysis: MoM condition status, squeeze-out mechanics, standstill provision review
• Appraisal/Litigation Assessment: Statutory rights summary, estimated fair value range, expected timeline and costs, fiduciary duty standard applicable
• Position Recommendation: Recommended action with risk/reward quantification and key contingencies

Quality Checks

• Confirm unaffected date is correctly identified (before any rumor, leak, or 13D filing)
• Verify all premiums and multiples are calculated consistently (equity value vs. enterprise value basis)
• Cross-check that management projections cited match those disclosed in the proxy/13E-3, not sell-side estimates
• Ensure appraisal analysis reflects the governing state's statute and recent case law, not generic Delaware assumptions
• Flag any data gaps — missing financing commitment letters, redacted projections, or unavailable advisor engagement letters — with [VERIFY] markers
• Confirm the fiduciary duty standard (business judgment vs. entire fairness) is correctly mapped to the transaction's structural protections