The Private Equity Review Third Edition Editor Stephen L Ritchie

Law Business Research

The Private Equity Review

Reproduced with permission from Law Business Research Ltd. This article was first published in The Private Equity Review, 3rd edition (published in March 2014 – editor Stephen L Ritchie). For further information please email [email protected]

The Private Equity Review

Third Edition Editor

Stephen L Ritchie

Law Business Research Ltd



Publisher Gideon Roberton business development managerS Adam Sargent, Nick Barette Account managerS Katherine Jablonowska, Thomas Lee, James Spearing, Felicity Bown publishing assistant Lucy Brewer Marketing assistant Chloe Mclauchlan Editorial assistant Eve Ryle-Hodges HEAD OF PRODUCTION Adam Myers PRODUCTION editor Timothy Beaver subeditor Charlotte Stretch managing director Richard Davey Published in the United Kingdom by Law Business Research Ltd, London 87 Lancaster Road, London, W11 1QQ, UK © 2014 Law Business Research Ltd No photocopying: copyright licences do not apply. The information provided in this publication is general and may not apply in a specific situation, nor does it necessarily represent the views of authors’ firms or their clients. Legal advice should always be sought before taking any legal action based on the information provided. The publishers accept no responsibility for any acts or omissions contained herein. Although the information provided is accurate as of March 2014, be advised that this is a developing area. Enquiries concerning reproduction should be sent to Law Business Research, at the address above. Enquiries concerning editorial content should be directed to the Publisher – [email protected] ISBN 978-1-907606-98-4 Printed in Great Britain by Encompass Print Solutions, Derbyshire Tel: 0844 2480 112


The publisher acknowledges and thanks the following law firms for their learned assistance throughout the preparation of this book: A&L Goodbody Advokatfirmaet Steenstrup Stordrange DA BA-HR DA Bahas, Gramatidis & Partners Campos Mello Advogados CAREY Corrs Chambers Westgarth Creel, García-Cuéllar, Aiza y Enríquez, SC Cuatrecasas, Gonçalves Pereira, RL DLA PIPER UK LLP ENSafrica Han Kun Law Offices HENGELER MUELLER Hergüner Bilgen Özeke Attorney Partnership Jackson, Etti & Edu Khaitan & Co KIM & CHANG KIRKLAND & ELLIS LLP



Krogerus Labruna & Associati (LMS) – STUDIO LEGALE LENZ & STAEHELIN LEXYGEN Loyens & Loeff MACFARLANES LLP MAPLES AND CALDER McCullough O’Connor Irwin LLP NISHIMURA & ASAHI PLMJ – LAW FIRM PwC Schulte Roth & Zabel LLP Stikeman Elliott LLP URÍA MENÉNDEZ WongPartnership LLP



Editor’s Preface

��������������������������������������������������������������������������������������������������vii Stephen L Ritchie


FUNDRAISING����������������������������������������������������������������� 1–196

Chapter 1

BRAZIL��������������������������������������������������������������������������������������3 Sergio Ros Brasil, Marcus Vinicius Bitencourt, Leonardo Homsy and Rodrigo Pires Mattos

Chapter 2

CANADA����������������������������������������������������������������������������������14 Jonathan McCullough, James Beeby and Isaac Filaté

Chapter 3

CAYMAN ISLANDS����������������������������������������������������������������24 Nicholas Butcher and Iain McMurdo

Chapter 4

CHINA�������������������������������������������������������������������������������������35 James Yong Wang

Chapter 5

GERMANY�������������������������������������������������������������������������������46 Felix von der Planitz, Christoph Keil and Sandra Horst

Chapter 6

INDIA���������������������������������������������������������������������������������������60 Siddharth Shah and Bijal Ajinkya

Chapter 7

JAPAN���������������������������������������������������������������������������������������73 Kei Ito, Taku Ishizu and Akihiro Shimoda

Chapter 8

KOREA�������������������������������������������������������������������������������������84 Young Jay Ro, Young Man Huh, Yong Seung Sun, Joon Ho Lee and Kyle Park



Chapter 9

LUXEMBOURG����������������������������������������������������������������������92 Marc Meyers

Chapter 10

NORWAY�������������������������������������������������������������������������������104 Klaus Henrik Wiese-Hansen and Stig Nordal

Chapter 11

PORTUGAL���������������������������������������������������������������������������115 André Luiz Gomes and Catarina Correia da Silva

Chapter 12

SINGAPORE��������������������������������������������������������������������������125 Low Kah Keong and Felicia Marie Ng

Chapter 13

SOUTH AFRICA�������������������������������������������������������������������135 Johan Loubser, Jan Viviers and Andrea Minnaar

Chapter 14

TURKEY���������������������������������������������������������������������������������149 Ümit Hergüner, Mert Oğuzülgen and Zeynep Tor

Chapter 15

UNITED KINGDOM�����������������������������������������������������������161 Mark Mifsud

Chapter 16

UNITED STATES������������������������������������������������������������������174 Joseph A Smith and Conrad Axelrod



Chapter 1

AUSTRALIA���������������������������������������������������������������������������199 Philip Kapp and James Delesclefs

Chapter 2

BELGIUM������������������������������������������������������������������������������211 Stefaan Deckmyn and Wim Vande Velde

Chapter 3

BRAZIL����������������������������������������������������������������������������������225 Sergio Ros Brasil, Marcus Vinicius Bitencourt and Camila Caetano Cardoso



Chapter 4

CANADA��������������������������������������������������������������������������������235 Brian M Pukier and Sean Vanderpol

Chapter 5

CHILE������������������������������������������������������������������������������������246 Andrés C Mena, Salvador Valdés and Francisco Guzmán

Chapter 6

CHINA�����������������������������������������������������������������������������������257 David Patrick Eich, Pierre-Luc Arsenault, Stephanie Tang and Jesse Sheley

Chapter 7

FINLAND������������������������������������������������������������������������������275 Mika Ståhlberg, Marcus Möller and Leif Laitinen

Chapter 8

FRANCE���������������������������������������������������������������������������������285 Maud Manon, Xavier Norlain, Jeremy Scemama and Guillaume Valois

Chapter 9

GERMANY�����������������������������������������������������������������������������298 Hans-Jörg Ziegenhain and Alexander G Rang

Chapter 10

GREECE���������������������������������������������������������������������������������310 Christos Gramatidis

Chapter 11

INDIA�������������������������������������������������������������������������������������318 Vijay Sambamurthi

Chapter 12

IRELAND�������������������������������������������������������������������������������330 David Widger

Chapter 13

ITALY��������������������������������������������������������������������������������������344 Fabio Labruna

Chapter 14

JAPAN�������������������������������������������������������������������������������������353 Kei Ito, Taku Ishizu and Tomokazu Hayashi



Chapter 15

KOREA�����������������������������������������������������������������������������������363 Young Jay Ro, Jong Koo Park, Yun Goo Kwon, Sung Uk Park and Yun Bak Chung

Chapter 16

MEXICO��������������������������������������������������������������������������������373 Carlos del Rio, Eduardo González and Jorge Montaño

Chapter 17

NIGERIA��������������������������������������������������������������������������������388 Folasade Olusanya, Adekunle Soyibo and Oluwaseye Ayinla

Chapter 18

NORWAY�������������������������������������������������������������������������������396 Peter Hammerich and Markus Heistad

Chapter 19

PORTUGAL���������������������������������������������������������������������������406 Tomás Pessanha and Manuel Liberal Jerónimo

Chapter 20

SINGAPORE��������������������������������������������������������������������������420 Andrew Ang, Christy Lim and Dawn Law

Chapter 21

SPAIN�������������������������������������������������������������������������������������432 Christian Hoedl and Diana Linage

Chapter 22

SWITZERLAND��������������������������������������������������������������������444 David Ledermann, Olivier Stahler and Nicolas Béguin

Chapter 23

TURKEY���������������������������������������������������������������������������������457 Ümit Hergüner, Mert Oğuzülgen and Zeynep Tor

Chapter 24

UNITED KINGDOM�����������������������������������������������������������470 Stephen Drewitt

Chapter 25

UNITED STATES������������������������������������������������������������������487 Norbert B Knapke II

Appendix 1

about the authors���������������������������������������������������� 503

Appendix 2

Contributing Law Firms’ contact details�� 531


Editor’s Preface

This third edition of The Private Equity Review comes on the heels of a very good 2013 for private equity. Large, global private equity houses are now finding opportunities to deploy capital not only in North America and western Europe, where the industry was born, but also in developing and emerging markets in Asia, South America, the Middle East and Africa. At the same time, these global powerhouses face competition in local markets from home-grown private equity firms, many of whose principals learned the business working for those industry leaders. As the industry becomes more geographically diverse, private equity professionals need guidance from local practitioners about how to raise money and close deals in multiple jurisdictions. This review has been prepared with that need in mind. It contains contributions from leading private equity practitioners in 28 different countries, with observations and advice on private equity dealmaking and fundraising in their respective jurisdictions. As private equity has grown, it has also faced increasing regulatory scrutiny throughout the world. Adding to the complexity, regulation of private equity is not uniform from country to country. As a result, the following chapters also include a brief discussion of these various regulatory regimes. While no one can predict exactly how private equity will fare in 2014, one can confidently say that it will continue to play an important role in the global economy. Private equity by its very nature continually seeks out new, profitable investment opportunities, so its continued expansion into growing emerging markets appears inevitable. We will see how local markets and policymakers respond. I want to thank everyone who contributed their time and labour to making this third edition of The Private Equity Review possible. Each of them is a leader in his or her respective market, so I appreciate that they have taken their valuable and scarce time to share their expertise. Stephen L Ritchie Kirkland & Ellis LLP Chicago, Illinois March 2014


Chapter 20

SINGAPORE Andrew Ang, Christy Lim and Dawn Law1

I Overview i

Deal activity

The beginning of 2013 saw the conclusion of the months-long takeover battle between Thai billionaire Charoen Sirivadhanabhakdi and Indonesia’s Riady family over Fraser and Neave Limited. Mr Charoen ultimately won control over Fraser and Neave Limited with an offer of S$13.8 billion.2 This was the largest M&A transaction in Singapore’s corporate history and also the first Singapore takeover with an auction procedure being proposed to resolve competing bids. The Singapore market also saw another corporate tussle over conglomerate WBL Corp between United Engineers Ltd and Straits Trading Co, where United Engineers Ltd emerged as the victor with an offer price that valued WBL Corp at around S$1.25 billion.3 Singapore government-linked private equity investor Temasek Holdings has been fairly active this year – it made S$20 billion of investments and S$13 billion of divestments.4 Three of its acquisitions were in the top-10 deals in terms of value.5 They

1 2 3

4 5

Andrew Ang, Christy Lim and Dawn Law are partners at WongPartnership LLP. ‘Thai Billionaire Charoen Wins Control of Fraser & Neave’ (30 January 2013), www. ‘Straits Trading Company Accepts United Engineers’ offer for WBL Corp’ (13 May 2013), ‘Temasek Review 2013 – Chairman’s Statement’ (July 2013), sg/#overview-fromOurChairman. ‘American Appraisal Transaction Trail Annual Issue 2013’, uploads/2013/12/AmericanAppraisalTransactionTr5-Annual-Issue-2013.pdf.


Singapore included the acquisition of minority stakes in Repsol, a listed Spanish integrated oil company and Evonik Industries, a German speciality chemical company. Temasek Holdings also took a 10 per cent stake in British-based Markit, a financial information services company. Private equity investors continued to seek out investment opportunities. Notable private equity investments in Singapore include the acquisition of a majority stake in the offshore oil and gas service provider, Kreuz Holdings Limited by SEA9 Pte Ltd, an investment holding company controlled by The Headland Private Equity Fund 6 LP, and the acquisition by the Northstar Group of Hersing Corporation Pte Ltd’s real estate agency business, which includes the ERA Real Estate franchise in Singapore and the Asia-Pacific region. In terms of exits, private equity investors continued to seek out appropriate exit opportunities for their matured investments. Notable examples include the sale by Asia Real Estate Income Fund (which is managed by the Pacific Star Group) of TripleOne Somerset to Perennial Real Estate Holdings Pte Ltd6 and the exit of the private equity fund, Macquarie Infrastructure and Real Assets from Asian Pay Television Trust by way of initial public offering.7 Singapore recorded approximately 365 deals worth US$34 billion in 2013, a slight increase from 338 deals valued at US$28 billion in 2012.8 ii

Operation of the market

The existing management of a target company that is acquired by a private equity sponsor will typically continue to manage the businesses of the target company. It is common for the private equity sponsor to offer incentive plans to the management of the target company to retain their employment and to align their economic interests with those of the sponsor. A Singapore going-private transaction backed by a private equity sponsor will generally see the participation of the management of the target company in the bidding vehicle. To the extent that they hold shares in the target company, the management will swap their shares for equity in the bidding vehicle or tender their shares towards acceptance of the takeover offer (and thereafter apply the proceeds towards subscription for shares in the bidding vehicle). In addition to such rollover arrangements, the private equity sponsor may also set aside a portion of its shareholding in the bidding vehicle to establish a share incentive scheme where such shares are offered to management upon fulfilment of stipulated performance targets.

6 7


‘TripleOne Somerset sold for $970m’ (23 December 2013), ‘Macquarie to exit Asian Pay Television Trust with $1.1 billion Singapore IPO’ (20 May 2013), ‘American Appraisal Transaction Trail Annual Issue 2013’, uploads/2013/12/AmericanAppraisalTransactionTr5-Annual-Issue-2013.pdf.


Investing Some private equity sponsors may also make a distinction between classes of management personnel (i.e., between key management who are instrumental to the operations and success of the target group and the more ‘rank and file’ management personnel who are in charge of the day-to-day running of the business). The former would typically have a greater equity stake in the target group (through rollover arrangements and share option schemes) and may be delegated the discretion to administer the equity incentive programmes for the latter, who might not be allocated equity stakes but might have some other form of reward-sharing (for instance, through bonus payouts or the less commonly used phantom share option schemes). With regard to shareholders’ arrangements between the private equity sponsor and management, the private equity sponsor would be concerned about lock-up arrangements for management and facilitation of its exit. It is not uncommon for the private equity sponsor, which is usually the majority shareholder or in a stronger bargaining position, to impose a moratorium or restrictions on transfer of shares by the management in the shareholders’ agreement between the parties. Such moratorium or restrictions would usually be at least for a period that coincides with the anticipated period of time that the management would take to enhance the value of the target group and achieve an exit for the private equity sponsor. The private equity sponsor would normally also reserve the right to require the management to co-sell its shares in the target company in order to procure the sale of the entire share capital of the company in an exit event. Other terms commonly found in such shareholders’ agreements include ‘good-leaver’ and ‘badleaver’ provisions, which deal with the exit price payable to a departing member of the management team that reflects the reasons for departure, as well as non-compete and non-solicitation provisions. These provisions may also be replicated in the employment contracts of the management team. The main exit routes for private equity sponsors are through a public flotation of the target company’s shares, which is often accompanied by a secondary offering of vendor shares held by private equity sponsors and a trade sale involving a sale of the entire share capital of the target company. Private equity sponsors may favour a trade sale by way of a controlled auction, as the presence of competing bidders may encourage higher prices and more favourable terms for the vendors. The controlled auction process also provides a greater degree of confidentiality and allows for greater control of the data room. Depending on the management of the process, typically by a financial adviser appointed by the private equity sponsor, a controlled auction process in Singapore may take anywhere from five months to a year to complete. While the specific mechanics differ, a standard sale by way of controlled auction would involve four stages. The process commences with the circulation of a teaser or fact sheet to potential bidders (preliminary information). Sufficient information has to be provided (i.e., business model, strategy for growth, principal assets and limited financial information) to generate interest and elicit meaningful bids. Upon execution of non-disclosure agreements, potential bidders who have expressed interest are allowed access to a confidential information memorandum. They are also provided with the bid process rules, timeline and parameters for their indicative proposals. Information that potential bidders are usually expected to provide in the indicative proposals includes:


Singapore a b c d e

identification of the bidder – a description of its principal business, operational or financial qualifications, major shareholders, organisational structure and key regional management, etc.; the indicative price that the bidder is prepared to pay, its valuation methodology and assumptions; intended sources of financing and confirmation that such financing is expected to be available; key issues expected to be addressed at the due diligence stage; and the bidder’s strategic intentions, including future plans and intentions in relation to the management shareholders (as is likely the case) of the company.

Selected bidders are then allowed further access to information through access to the full data room (although there might still be black box items, in some cases also depending on whether the bidder is a strategic bidder or another financial sponsor); scheduled access, interviews and interaction with the management of the company; and participation in site visits. The ultimate short-listed bidders (usually no more than two) will enter into final negotiations on the definitive agreements, where the private equity sponsor will weigh the bid price offered against the terms each bidder is seeking (especially with regard to escrow arrangements, warranties and indemnities). Increasingly, demand for warranty and indemnity insurance come into play to mitigate deal risk for private equity firms. The auction process concludes with the selection of the winning bidder and the execution of the definitive agreements. II



Acquisition of control and minority interests

A private equity sponsor will likely structure a going-private transaction either as a general offer subject to the Singapore Code on Take-overs and Mergers (the Take-over Code) or a scheme of arrangement subject to both the Take-over Code and the Companies Act (the Companies Act). Briefly, the two structures differ in terms of timing, thresholds and outcomes. In the case of a general offer under the Take-over Code, there is a strict timeline to be adhered to once a firm intention to make an offer is announced by the bidding vehicle. This announcement triggers the obligation of the bidding vehicle to despatch the offer document to the target company’s shareholders (no earlier than day 14 and no later than day 21 after the announcement) and the target company is then obliged to respond with an offeree document (within 14 days after the despatch of the offer document). The Take-over Code also stipulates the time frame with respect to how long the offer can be kept open and the circumstances under which the offer can be extended. Depending on whether the general offer is made subject to specific conditions that are permitted by the Securities Industry Council of Singapore (the SIC), the offer will either lapse as a result of such conditions not being satisfied, or close successfully. The key difference in timing of the implementation of a scheme of arrangement arises from the preparation of the scheme document that requires the cooperation of the


Investing target company as well as review by the Singapore Exchange Securities Trading Limited (the SGX) (as opposed to the offer document process, which is purely driven by the offeror and not subject to any review process). The documentation and SGX review process may take up to eight weeks following the joint announcement by the bidding vehicle and the target company of the proposed scheme. Once the scheme document is cleared by the SGX, the target company will need to apply to the High Court of Singapore for leave to convene a meeting of the shareholders to consider the scheme and to give notice to shareholders to convene the meeting. After the requisite approval is obtained at the shareholders’ meeting, the target company will have to apply to the High Court again to sanction the scheme. The scheme will only become effective after the relevant court order is lodged with the Accounting and Corporate Regulatory Authority (ACRA). Unless an objection is raised at the court hearing, a scheme of arrangement is likely to take effect about four months after the initial joint announcement was made. Except in the case of a partial offer, a general offer must be conditional upon an offeror receiving acceptances in respect of more than 50 per cent of the voting rights in the target company (although the acceptance threshold may be set at a higher level in a voluntary general offer, such as 90 per cent to achieve the right of compulsory acquisition). A scheme of arrangement is subject to the approval of a majority in number of shareholders representing 75 per cent in value of the members or class of members present, and voting either in person or by proxy at the scheme meeting. A general offer under the Take-over Code does not necessarily result in privatisation, as that would depend on whether the bidding vehicle is able to invoke the compulsory acquisition procedure under Section 215 of the Companies Act to ‘squeeze out’ the minority shareholders. On the other hand, a scheme of arrangement offers an ‘all or nothing’ result and may be the preferred route for private equity sponsors who wish to acquire 100 per cent of the target company through a single transaction rather than to merely end up with a majority stake in a listed entity (which is still subject to listing rules and other compliance requirements). A going-private transaction in Singapore may also be structured as a voluntary delisting by the listed target company from the SGX, coupled with an exit offer typically made by an existing major shareholder of the target company; however, this is unlikely to be adopted by a private equity sponsor as the first step in the privatisation process (unless it or its concert parties already have a majority stake in the target company), as this structure could result in the sponsor holding a majority stake in a delisted public company but not achieving its objective of wholly owning the target company. In some going-private transactions in Singapore, a voluntary delisting is used as the second step to take the target company private following an initial voluntary offer that does not result in the bidding vehicle being able to meet the compulsory acquisition threshold. The framework for acquisition of private companies by private equity sponsors is also dependent on the requirements or restrictions in the memorandum and articles of association of the target company (M&AA) or the shareholders’ agreements between existing shareholders. The presence of pre-emption rights, tag-along or drag-along rights might hinder the speed, ease and flexibility with which the private equity sponsor may implement the acquisition, as much would depend on whether the relevant consents or waivers can be sought or the timing upon which these processes are carried out.


Singapore Tax-related issues tend to drive the deal structure (in particular, holding structure and domicile of an acquisition vehicle) on a cross-border going-private or private equity transaction, as parties seek to minimise the tax costs of the acquisition as well as tax leakages in the existing operations. Specifically, the impact of withholding taxes on dividends, local taxes, distributions and interest payments and restrictions on the private equity sponsor’s ability to repatriate earnings should be taken into account when structuring such cross-border transactions. A private equity sponsor looking to implement a leveraged transaction would also have to consider the laws in the jurisdiction where the target company and its assets are located, as these may prohibit or restrict companies in the relevant jurisdictions from providing financial assistance in the form of security arrangements or guarantees for the acquisition financing. These limitations may compel the private equity sponsor to procure separate bank financing in a jurisdiction outside of where the bidding vehicle is incorporated to provide the lenders with an appropriate security arrangement to support the credit assessment. ii

Fiduciary duties and liabilities

As a general rule, a private equity sponsor is entitled to act in its own interest in its capacity as shareholder, even when it is the majority shareholder of the target company. The exceptions to this general principle are circumstances where such acts breach the provisions of the M&AA (usually the minority protection provisions) or constitute minority oppression under Section 216 of the Companies Act. Section 216 of the Companies Act allows minorities to seek recourse in the courts where there is ‘oppression’ of a member; where a member’s interests are ‘disregarded’; or where there is a resolution or act that ‘unfairly discriminates’ against or is otherwise ‘prejudicial’ to a member. The common thread underlying Section 216 of the Companies Act is the element of unfairness and the court, in determining whether to grant relief under this provision, may take into consideration whether there was any disregard of legitimate expectations of a member (which may arise otherwise than from the M&AA). The court has wide powers under Section 216 of the Companies Act to remedy or put an end to the matters complained of. The directors of a Singapore company have fiduciary duties to act in the best interests of the company. If the company is listed on the SGX-ST, its directors are also required to comply with the SGX listing rules as well as the principles and guidelines of the Code of Corporate Governance. In February 2010, the Corporate Governance Council (the Council) was established by the Monetary Authority of Singapore (the MAS) to promote a high standard of corporate governance in listed companies in Singapore, so as to enhance Singapore’s reputation as one of the foremost financial and business hubs on a global scale and to boost the confidence of prospective and current investors. The Council acts as an adviser to the MAS, ACRA and the SGX regarding corporate governance issues and rules that apply to listed companies in Singapore. Following a complete review, the Council released its final recommendations on the proposed revisions to the Code of Corporate Governance on 22 November 2011. The revised Code of Corporate Governance, which was issued on 2 May 2012 and applies to annual reports relating to


Investing financial years commencing from 1 November 2012, includes amendments that, inter alia, concern the element of independence of the board of directors where the definition of ‘independent director’ has been refined to include a director with no relationship with the company, its related corporations, its 10 per cent shareholders or its officers that could interfere or be perceived to interfere with his or her independent business judgement. The amendments underpin the prevailing sentiment in the business community that the standards of corporate governance need to be raised. Thus, any representative of a private equity sponsor who sits on the board of a portfolio company should not neglect the interests of minority shareholders while discharging his or her duties towards his or her appointor. Where the portfolio company is listed on the SGX, the private equity sponsor would be subject to the disclosure regime in the Companies Act and the Securities and Futures Act upon becoming a substantial shareholder of the company (i.e., upon acquiring 5 per cent or more of the voting rights of the company) and when there is any change in the percentage level in its substantial shareholding and the disclosure must be in a form prescribed by the MAS (available on the MAS website). As the disclosure regime seeks to flush out the ultimate controllers of those voting rights, private equity sponsors should note that their fund set-up (including layers of holding companies, general partners, investment managers, and even the founders) may become public information. Under Singapore insider-trading laws, if a party is in possession of price sensitive information (PSI) in relation to a company that is not generally available, such a party is prohibited from trading (and from procuring another person to trade) in the company’s securities. A contravention of such laws may give rise to both civil and criminal liabilities. PSI is essentially non-public confidential information that, if it was generally available, a reasonable person would expect it to have a material effect on the price or value of the company’s securities (i.e., the information would or would be likely to influence parties that commonly invest in securities in deciding whether to trade or invest in the company’s securities). Given this broad definition, it is difficult to exhaustively list the type of information that would be regarded as PSI for the purposes of insider trading laws. One obvious example would be a profit forecast or financial projections of the target company that have not been made known publicly. Thus, where a private equity sponsor is conducting due diligence on a potential target company, it should be circumspect in requesting information and be mindful not to obtain PSI unless the target company is prepared to disclose such PSI in the public domain before the private equity sponsor deals in the securities of the target company. III



Recent deal activity

The corporate tussle for Fraser and Neave Limited that began in 2012 spilled over to 2013 and accounted for a lion’s share of the deal value of 2013. 2013 also saw the privatisation of a few listed companies like China Animal Healthcare Ltd, Guthrie GTS Limited, Hup Soon Global Corporation Limited and Pan Pacific Hotels Group Limited.


Singapore Notable private equity investments in Singapore include the acquisition of a majority stake in the offshore oil and gas service provider, Kreuz Holdings Limited by SEA9 Pte Ltd, an investment holding company controlled by The Headland Private Equity Fund 6 LP; the acquisition by the Northstar Group of Hersing Corporation Pte Ltd’s real estate agency business, which includes the ERA Real Estate franchise in Singapore and the Asia-Pacific region; the acquisition by Navis Asia VI Management Company Ltd of a majority equity interest in TES-Envirocorp Pte Ltd, an electronic waste management company; and the investment in Zalora by Summit Partners, Investment AB Kinnevik, Verlinvest and Tengelmann Group. ii Financing Acquisition financing undertaken by private equity-backed vehicles in Singapore has primarily been achieved by way of debt financing, with equity financing being a less common feature. Transactions generally still veer towards the conventional, and the basic lending structure comprises predominantly debt, with equity investment by management and investors taking on a less prominent role. This could possibly be explained in the context of priority – since equity ranks last in the payment waterfall in an inter-creditor situation, banks prefer to ensure their position as first-ranking creditors as far as possible. In addition, debt financing provides a means for acquistion even where an investor does not possess sufficient funds or does not wish to pay for the entire price upfront. Therefore, despite the varied forms of equity financing available (which includes not only the injection of funds by way of subscribing for ordinary shares, but also the issuance of preference shares with special rights and convertible loan notes), debt financing nonetheless remains predominant. A common debt-financing technique used by private equity firms to finance an acquisition is the leveraged buyout. In such a case, the debt is secured by the assets of the target company, and repayments of the debt are made by the target company through its own resources or future debt refinancing; however, we have observed a drop in leveraged buyout activities in recent years due to the tightening credit market. In Singapore, financial assistance restrictions currently present additional issues for leveraged buyout financing arrangements, although such obstacles may well soon be abolished in respect of private companies (which are not subsidiaries of public companies) due to the recent proposed amendments to the Companies Act (discussed further below). Several alternate types of financing structures that have been utilised in acquisition financing (involving a larger quantum) include: a Senior and mezzanine debt – apart from senior debt that has typically formed the greater share of the entire debt package, the introduction of a mezzanine tranche (subordinated in terms of priority of repayment and security behind the senior tranche) has also been fairly common. Given the heightened element of risk inherent in such mezzanine financing, players in the mezzanine field usually expect a higher margin and incentives via equity kickers such as warrants (options to subscribe for shares in the acquirer or offeror at prescribed points). Payment-inkind tranches of mezzanine debt may also be adopted where interest is capitalised during the life of the facility, which in turn represents higher and more attractive returns to mezzanine lenders. Following the financial crisis, relatively greater




emphasis has been placed on the terms of the inter-creditor agreement, which governs the priority and ranking of payment in the event of any enforcement of security. High-yield bonds – in larger financing transactions, the mezzanine debt may be replaced or refinanced by high-yield bonds. The minimum size of a highyield bond issue usually falls within the higher region in order to create sufficient liquidity within the issue, and the use of this method of financing has been restricted to the higher buyouts. Obviously, the assets of the target company have to be significant, and its activities should yield a sufficiently certain and regular stream of cash flow in order to justify the issue and to make it a commercially viable means of financing.

As previously noted, a financier typically looks to the assets of the target company in seeking to maximise its collateral pool. Whether it is able to enhance its security package is fundamentally premised on the twin key factors of the availability of the asset pool of the target company and (depending on the locality and the asset in question) the feasibility of taking such securities, bearing in mind the legal inhibitions applicable in each relevant jurisdiction (including financial assistance issues). If the financiers consider the security package insufficient, they may at times require additional safeguards such as the provision of corporate or individual guarantees from parties related to the acquirer. Taking into account the above, key covenants found in financing arrangements have sought to address concerns in any prior contractual restrictions or encumbrances on the assets; require the target company undertake ‘whitewash’ procedures to legalise the potential financial assistance issue of using the target company’s assets to provide security; ensure that the target company recognises the corporate benefit in providing security using its assets so that the directors of the target company fulfil their fiduciary duties; and include mandatory prepayment upon certain events such as disposal of shares in the target company. In a going-private transaction governed by the Take-over Code, the financial adviser to the private equity sponsor is expected to issue a confirmation of financial resources. Hence, conditions precedent to the drawing down of any bridge loan used to finance a takeover offer must be kept to a minimum to ensure certainty of funding (i.e., that funds are available, when required, to satisfy settlement of acceptances of the offer). Clauses such as material adverse change clauses or the like that would allow the financer to walk away from its commitment are also not feasible in such circumstances, as certainty of funding is of utmost importance. Typically, lenders financing the acquisition of a Singapore-incorporated target company have also come to accept that they may not necessarily have the security in place at the point of completion of the acquisition when funding is disbursed due to the need to complete the financial assistance ‘whitewash’ procedures. Instead, parties typically agree on a time frame within which the financial assistance ‘whitewash’ procedures must be undertaken and completed, and the security documentation executed thereafter. However, with the proposed abolishment of financial assistance rules with respect to private companies that are not subsidiaries of public companies (also mentioned below), it is envisaged that this position may change and lenders are likely to require security to be provided prior to any disbursement of funds.


Singapore iii

Key terms of recent control transactions

A private equity sponsor whose objective is to privatise a listed company (i.e., an ‘all or nothing’ outcome) but does not wish to do so by way of a scheme of arrangement (because of the protracted timeline and process) may do so by way of a voluntary offer that is conditional upon a higher minimum acceptance threshold of 90 per cent acceptances. By pegging the minimum acceptance condition to the compulsory acquisition threshold under Section 215 of the Companies Act, the private equity sponsor either privatises the target company or walks away if the acceptance condition is not met. A private equity sponsor acquirer would typically wish to have a financing condition as part of the purchase agreement to ensure that its obligations are conditional on the availability of debt financing. However, recent Singapore private equity transactions would suggest that such a condition would not be acceptable to most vendors. In making an exit, a private equity sponsor that is seeking to exit in line with its investment time frame would likely prioritise certainty of closing. If the sale is conducted by way of auction, a bidder that is able to commit to a ‘sign and close’ would be expected to be a front runner in the process. In such circumstances, the only closing conditions that are likely to be acceptable would be those related to regulatory approvals (e.g., merger control) that are truly essential, and even then, only when it is fairly certain that such approvals would be forthcoming. Except for adjustment for dividends declared or paid during the offer period, it is not common for there to be any purchase price adjustment for acquisition of public companies in Singapore. Post-completion audits, and consequentially purchase price adjustments, are more common in the sale of private companies, especially where there is a reasonable time gap between the evaluation of the deal consideration (which may be earlier than the date of signing of the purchase agreement) and completion of the transaction. As previously mentioned, a private equity sponsor that is seeking to exit its investment and return the proceeds to its investors would be concerned about certainty and finality of closing; it may not be too keen on post-completion purchase price adjustment, and thus may prefer a ‘locked-box’ approach to the purchase price. However, it may not be able to insist on such preference if the purchaser is also in a fairly equal bargaining position and this should not be a deal-breaking issue, especially if there is a potential upside adjustment for the private equity sponsor (for instance, where the performance of the company is seasonal and the period in respect of which post-completion audit takes place falls during the months when the target company traditionally performs better). IV REGULATORY DEVELOPMENTS Generally, the oversight of regulatory bodies such as the SIC and the SGX is relevant when the target company is listed on the SGX. The MAS is also relevant with regard to the regulation of fund management companies. In 2013, the MAS issued various regulatory amendments, inter alia, the MAS clarified that the executive directors of fund management companies who manage or advise private equity and venture capital funds (PEVC Funds), should have relevant experience in the financial services industry and in industries which are similar in nature to those of the investee companies being held (or


Investing to be held) by the PEVC Funds (which are managed or advised by the fund management company). A steering committee was set up by the Ministry of Finance (MoF) to carry out a fundamental review of the Companies Act. On 2 May 2013, the MoF released the draft Companies (Amendment) Bill 2013 proposing amendments to the Companies Act to implement the recommendations made by the steering committee. The MoF agreed with the recommendation by the steering committee to extend the right to issue shares with different voting rights (currently allowed for private companies) to public companies to give them greater flexibility in capital management. The MoF also agreed with the steering committee to remove the prohibition in the Companies Act against a private company from giving financial assistance for acquisition of its own shares or those of its holding company as private companies are usually closely held and shareholders have greater control over the decision to give financial assistance. This will reduce cost for private companies and is consistent with the position in the UK. While the prohibition on financial assistance will continue to apply to public companies and their subsidiaries, the MoF accepted the steering committee’s recommendation to introduce a new exception to allow a public company or its subsidiary to provide financial assistance if such assistance does not materially prejudice the interests of the company or its shareholders or the company’s ability to pay its creditors. Between 23 October 2013 and 19 November 2013, the MoF and the Accounting and Corporate Regulatory Authority also conducted a public consultation seeking feedback on legislative changes to the Companies Act affecting share buyback limits, directors, foreign companies and various other aspects of the Companies Act. The MoF indicated that it would provide an update on the public consultation in early 2014. V OUTLOOK 2014 is expected to see continuing interest of private equity investors in the South East Asia market. With entrepreneurs and executives across this region increasingly more aware of the value and wealth creation opportunities that private equity can bring to their businesses, deal volumes are expected to increase in 2014. Private equity funds with under-invested capital will continue to contribute to the deal activity in this region. Singapore continues to be seen as an important hub of the region, with the Blackstone Group establishing offices in Singapore in 2013 to venture into the South East Asia market. Singapore is well placed to capitalise on the growing prominence of South East Asia with its strategic location and established financial infrastructure. Indonesia’s currency volatility in the second half of 2013 and imminent legislative election in 2014 are likely to further chill its recently cooled M&A market. Apprehension will linger as private equity investors identify the stance of the new government and changes in the regulatory environment. Notwithstanding the challenges, Indonesia is expected to remain an attractive deal market in the region once the currency situation abates and the country’s leadership and economic policies crystallise after the conclusion of the upcoming elections. An increase in private equity activity in the technology, media and telecommunications and consumer sectors can be expected in South East Asia with


Singapore buoyant consumer demand for smart phones, handheld devices, retail brands and household goods in 2014. There is also an increasing trend, particularly for managed bid or auction sale processes and towards the use of vendor due diligence in transactions to minimise and streamline transaction timelines, processes and costs.


Appendix 1

about the authors

ANDREW ANG WongPartnership LLP Andrew Ang is the head of the firm’s corporate and M&A practice, and is a partner in the private equity practice. His main practice areas are local and cross-border M&A, corporate restructurings, joint ventures, privatisations and private equity investments. He is involved in several high-profile private equity transactions, including acting for Northstar Group in its acquisition of the ERA Real Estate franchise in Singapore and the Asia-Pacific. He graduated from the University of Nottingham. He is admitted as a barristerat-law (Gray’s Inn) and to the Singapore Bar. Andrew has been ranked by Chambers Global and Chambers Asia-Pacific as a leading Singapore practitioner in the area of corporate/M&A since 2009. He is also recommended in Asialaw Profiles 2014, Asialaw Leading Lawyers 2013, and is recognised as a rising star in IFLR1000 2014. He is endorsed by The Legal 500: Asia-Pacific and The Legal 500: Europe, Middle East & Africa; and PLC Which Lawyer? and Best Lawyers in Singapore in both corporate/ M&A and private equity/venture capital.


About the Authors CHRISTY LIM WongPartnership LLP Christy Lim is a partner in the firm’s banking and finance practice. Her main practice areas are banking, finance, security work, syndicated loans, club deals, cross-border and multi-currency transactions, transferable loans, loans with embedded debt-instrument conversion options, acquisition financing involving takeover offers (both mandatory and voluntary), schemes of arrangement, delisting proposals and exit offers, as well as mergers and acquisitions, debt restructuring, international and cross-border financing transactions involving Singapore law, banking, financial laws and regulations. Christy has been recommended as a leading lawyer for banking and finance work by Chambers Global and by Chambers Asia-Pacific since 2009. In the Chambers publications, Christy is recommended as ‘someone you would always want to have on your side’, praised by sources for her ‘skills and proficiency,’ and has also been commended in these publications as a lawyer ‘whose strong grasp of securities, acquisitions and debt restructurings makes her a lawyer of choice for a number of major private equity houses and investment banks’. Christy is also ‘seen regularly on cross-border and multi-currency deals’ and earns praise for her ability to ‘breeze through otherwise lengthy negotiations and appreciate commercial realities on transactions’. Christy is identified as a ‘key player’ by The Legal 500: Asia-Pacific 2013 and has also been described as a ‘prominent acquisition financing partner’ by Asialaw Profiles 2012. In 2013 she was also recognised as a leading finance practitioner by Best Lawyers. She graduated from the National University of Singapore and is admitted to the Singapore Bar. DAWN LAW WongPartnership LLP Dawn Law is a partner in the firm’s corporate and M&A practice and her main areas of practice encompass M&A and general corporate law. Transactions of significance that she has been involved in include acting for STX Europe AS in relation to the preconditional mandatory cash offer by Fincantieri – Cantieri Navali Italiani SpA for STX OSV Holdings Limited; the voluntary delisting of Devotion Energy Group Limited from the Singapore Exchange; PTT Mining Limited’s S$1.2 billion acquisition of Sakari Resources Limited; Credit Suisse (Singapore) Limited in relation to the proposed acquisition of Chartered Semiconductor Manufacturing Ltd for approximately S$5.6 billion; Advanced Semiconductor Engineering Inc in its privatisation of NASDAQ-listed ASE Test Limited by way of a scheme of arrangement for US$784 million (ALB Hong Kong Law Awards 2009 ‘Taiwan Deal of the Year); and Goldman Sachs (Singapore) Pte in the voluntary conditional cash offer for STATS ChipPAC Ltd for S$2.85 billion (the first single offer made in Singapore for a target company dual-listed on both the Singapore Exchange and NASDAQ – ALB SE Asia Deals of the Year Awards 2008 ‘M&A Deal of the Year’ and ‘Singapore Deal of the Year). Dawn graduated from the National University of Singapore. She is admitted to the Singapore Bar and to the Roll of Solicitors of England and Wales.


About the Authors WongPartnership LLP 12 Marina Boulevard Level 28 Marina Bay Financial Centre Tower 3 Singapore 018982 Tel: +65 6416 8000 Fax: +65 6532 5711 [email protected] [email protected] [email protected] [email protected]