lev-os 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
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
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
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]
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
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]
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