The Capital Markets and Private Equity: From Pre-IPO ......Andrew M. Herman will share the private...

February 6, 2019

The Capital Markets and Private Equity: From Pre-IPO Planning Through Public

Company Life

Presented by:

Andrew L. Fabens

Andrew M. Herman

Hillary H. Holmes

Julia Lapitskaya

Peter W. Wardle

MCLE Certificate Information

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• Most participants should anticipate receiving their certificate of attendance in four weeks following the webcast.

• Virginia Bar Association member should anticipate receiving their certificate of attendance in six weeks following the webcast.

• All questions regarding MCLE information should be directed to Jeanine Mckeown (National Training Administrator) at 213-229-7140 or [email protected].

mailto:[email protected]

Today’s Panelists

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Andrew L. Fabens will share insights based on his experiencewith initial public offerings of PE-sponsored companies. He is apartner in Gibson Dunn’s New York office, Co-Chair of the firm’sCapital Markets Practice Group and a member of the firm’sSecurities Regulation and Corporate Governance PracticeGroup. Mr. Fabens advises companies on long-term andstrategic capital planning, disclosure and reporting obligationsunder U.S. federal securities laws, corporate governance issuesand stock exchange listing obligations. He represents issuersand underwriters in public and private corporate financetransactions, both in the United States and internationally.

Andrew M. Herman will share the private equity firm’sperspective on participating in the U.S. capital markets. He is apartner in Gibson Dunn’s Washington, D.C. office and amember of the firm’s Mergers and Acquisitions and PrivateEquity Practice Groups. Mr. Herman’s practice focuses onadvising private equity sponsors and their portfolio companieson leveraged buyouts, growth equity investments and othertransactions. He also advises public companies on mergers andacquisitions transactions, securities law compliance andcorporate governance. He is experienced in advising on theacquisition and sale of sports franchises.

Hillary H. Holmes will share insights and trends regarding PEparticipation in the capital markets for public companies. She isa partner in Gibson Dunn’s Houston office, Co-Chair of thefirm’s Capital Markets practice group, and a member of thefirm’s Oil and Gas, Securities Regulation and CorporateGovernance, and Private Equity Practice Groups. Ms. Holmes’practice focuses on securities law and governance counseling inthe oil & gas energy industry. She represents private equity,public companies, private companies, MLPs, investment banksand management teams in all forms of capital marketstransactions. She also advises boards of directors, conflictscommittees, and financial advisors in complex transactions.

Julia Lapitskaya will share our views regarding corporategovernance of a PE-sponsored company. She is Of Counsel inGibson Dunn’s New York office and a member of theSecurities Regulation and Corporate Governance PracticeGroup. Ms. Lapitskaya’s practice focuses on corporategovernance, SEC and Securities Exchange Act of 1934compliance, securities and corporate governance disclosureissues, state corporate laws, the Dodd-Frank Act of 2010, SECregulations and executive compensation disclosure issues.

Peter W. Wardle will share insights based on his experiencewith initial public offerings of PE-sponsored companies. He isa partner in Gibson Dunn’s Los Angeles office and Co-Chair ofthe firm’s Capital Markets Practice Group. Mr. Wardle’spractice includes representation of issuers and underwritersin equity and debt offerings, including IPOs and secondarypublic offerings, and representation of both public and privatecompanies in mergers and acquisitions, including privateequity, cross border, leveraged buy-out, distressed and goingprivate transactions.

Special appreciation to Harrison Tucker and JP Lopez,associates in Gibson Dunn’s Houston office, for theirinvaluable assistance with this presentation.

Webcast Agenda

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• Part One: Considering the Exit Strategies at the Time of Investment

• Part Two: Preparing for an Initial Public Offering

• Part Three: Public Company Governance in Sponsor-Backed IPOs

• Part Four: Post-IPO Investment Management and Opportunities

Part One :Considering the Exit Strategies at the Time of Investment

Considering the Exit Strategies at the Time of Investment

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• Investment Term

• US PE-Backed Exits

• US PE-Backed IPOs

• Exit Routes from an Investment

• Facilitating a Successful Exit

• The Dual Track Process


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Investment Term

2.6 2

.9

3.8

3.4

3.2

3.8 3.9

3.8

2.1

2.7

3.4 3.5

3.2

4.9 5.0

5.0 5

.3 5.4

4.3

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 20180

1

2

3

4

5

6

Average Holding Period (Years)

PE Investment Holding Period Prior to IPO

Data Source: Preqin


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US PE-Backed Exits

261

464 513587 534

672 698 641 598460

28

4841

4767

75 4436

48

43

140

332366

493445

573 619

578 607

546

0

200

400

600

800

1000

1200

1400

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Corporate Acquisition IPO Secondary Buyout

61%55% 56% 52% 51% 51% 51% 51% 48% 44%

7%

6% 4%4% 6% 6% 3% 3%

4%4%

33%39% 40% 44% 43% 43% 46% 46% 48% 52%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Corporate Acquisition IPO Secondary Buyout

US PE-Backed Exits by PercentageUS PE-Backed Exits by Number

Data Source: PitchBook


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US PE-Backed IPOs


Total Gross

Proceeds

(billions)

Total Gross

Proceeds

(millions)Number of IPOs

$8

4.7

5

$4

0.8

9

$2

4.7

8

$3

8.3

6

$4

7.4

1

62

33

27

3535

0

10

20

30

40

50

60

70

80

90

2014 2015 2016 2017 2018

0

10

20

30

40

50

60

70

Total IPO Value # of IPOs

$6

86

.05

$5

34

.92

$6

92

.43

$8

63

.93

$7

16

.54

0

100

200

300

400

500

600

700

800

900

1000

2014 2015 2016 2017 2018

Median IPO Value

US PE-Backed IPO Activity Median US PE-Backed IPO Size


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Exit Routes from an Investment• Sale of the Company. Provides a complete and

immediate exit from the investment

• Initial Public Offering. A potentially attractive exit strategy used by private equity sponsors, as an IPO can provide the highest returns when optimal market conditions are present

• Secondary Buyout. May be an option because it means shortening the life of an investment; complete vs. partial exit strategy varies

• “Dual Track” Structure. Allows sponsor to preserve optionality as it evaluates the attractiveness of multiple exit (or partial exit) options while hedging against IPO market volatility and overall deal uncertainty

Partial Exits:

Dividends and Recapitalizations

Sponsors may achieve liquidity from their investment in a portfolio company through a special dividend. The type of dividend is defined by the source the company (or the parent holding company) uses to finance it:

A non-leveraged dividend recapitalization is financed by the company by using cash that it already has on hand (but likely subject to restrictions in financing documents).

A leveraged dividend recapitalization is financed by the company by incurring additional debt.


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Facilitating a Successful Exit

• Governance/Approval Rights

Generally control is established through the sponsor’s ownership and voting rights and Board composition

May be able to structure the investment to remove fiduciary duties to the portfolio company, thereby allowing the sponsor to act in its best interest

• Information Access

Requirement to prepare and deliver financial statements

Access to books and records

• Transfer Restrictions

Generally restrict free transferability

Typically accompanied by tag-along rights allowing investors to participate pro rata in sales

If transfers are permitted, they may be subject to rights of first offer or refusal requirements


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Facilitating a Successful Exit• Drag-along Rights

Provides greater certainty over sale process

Contractual right to require minority investors to participate in the sale of the portfolio company

• Registration Rights

Power to trigger or participate in registered public offerings of the portfolio company’s equity

Consider which holders should be given a right to participate in the IPO

• Redemption Rights

Ability to require the company to repurchase equity under certain circumstances

Pre-wire consequences if the company fails to (or cannot) repurchase equity

• General

Amendment provisions should be carefully considered to ensure flexibility vs. preservation of rights

Consider when various rights lapse

The substance of these provisions vary based on capital structure (control investment, club deal, management rollover)


Gibson Dunn 13

The Dual Track ProcessInitial Public Offering Sale Transaction Dual Track Process

Exit

• Typically a partial exit opportunity (depending on the size of the secondary offering)

• Slow sale of securities not sold in the IPO (generally subject to affiliate restrictions under Rule 144 unless a follow-on offering occurs)

• Signaling to the market of potential upside

• Generally allows for acomplete exit.

• Escrow or hold back could cause some funds to be unavailable for a period of time

• Ability to choose best exit opportunity given the circumstances

• Higher negotiating leverage with potential buyers

• Generally the costliest option and a distraction to management

Valuation• Equity valuation determined by underwriters• Charter provisions can give sponsors an effective

veto right based on valuation.

• No liquid market for shares, so valuation by company or its advisors is key

• Each process can inform the other.

Future capitalraises

• Access to public capital markets for future financing

• Once an issuer becomes eligible for S-3 shelf registration and/or a WKSI, easy access to public markets

• Shifted to buyer

Management

• May have greater management support• Current management will often stay on board

post-IPO• Greater visibility and enhanced corporate image• Management retains its equity and is granted

new equity

• May be subject to some resistance from management, as strategic buyers may have their own management teams

• Financial incentives for management may be great, including future appreciation through rollover

• Higher management distraction due to simultaneous IPO and sale transaction processes

• Management may favor IPO due to job security


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The Dual Track Process

Initial Public Offering Sale Transaction Dual Track Process

Legal matters• Heavy compliance and disclosure obligations• Ongoing Exchange Act reporting requirements• Sarbanes-Oxley compliance

• Subject to antitrust and other anti-competitive review

• Advanced preparation required to address legal concerns of both processes

Cost of transaction

• Expenses are high• Disclosure costs, legal fees, underwriter fees• Ongoing public company costs can add over $2

million per year

• Expenses are high• Risk that competitors may

enter bids solely to gain access to confidential information

• Costs can be higher due to running two exit processes in tandem

• Overall cost is lower than if one type of exit fails and the other is commenced later

Timing of Transaction

• Four to six months from organizational meeting to closing of the transaction

• Typically one to two months

Part Two:Preparing for an Initial Public Offering

Preparing for an Initial Public Offering

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• Illustrative IPO Timeline

• Illustrative Dual Track Timeline

• Effects of the Government Shutdown

• EGC Status and its Benefits

• Efforts to Revive the IPO Market


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Illustrative IPO Timeline

General IPO

Preparation

Organizational Meeting Confidentially Submit to

the SEC

Receive Initial SEC

Comments

Effective Date/

PricingClosing

Due Diligence/

Drafting Sessions

Print “red herring” and Begin

Road Show

10 days4 weeks4-8 weeks 2 days

Pre-Filing Period Waiting Period Post-Effective Period

4-8 weeks

Latest date to make

public filing

15 days


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Illustrative Dual Track Timeline

Select M&A advisors and

IPO underwriting syndicate

Identify and address

corporate organization,

accounting and financial

statement issues

Assess due diligence

strategy and identify third-

party diligence service

Begin drafting registration

statement

Week 1 Week 5 Week 7 Week 11

Week 13 Week 15 Week 20 Week 22

Submit initial

draft of

registration

statement

Receive initial

SEC comments

Commence

M&A auction

process

Conduct

management

presentations

Initial auction

bids due

File first

amendment

to registration

statement

Address

additional SEC

Comments

Print and file

preliminary

prospectus and

launch road

show

Price IPO with

Closing T+2

Bidders conduct

detailed due

diligence

Determine

track to follow

Negotiate terms and

consider valuation

versus IPO

Final auction

bids due

Hold IPO

organizational

meeting


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Effects of the Government Shutdown• 2019 was expected to be a big year for IPOs

Nasdaq received 22% higher number of IPO applications at the end of 2018 than they had at the end of 2017.*

Big name “unicorn” companies such as Uber, Lyft, Slack and Airbnb were reportedly gearing up to go public this year. These companies, however, have strong balance sheets and may wait for better market conditions.

• Expect continued disruption despite SEC reopening

Only 285 out of 4,400 SEC employees were on the job during the shutdown mostly in law enforcement.**

Unlike prior government shutdowns, the SEC did not have access to emergency funding. Thus, the SEC did not review any IPO filings.**

The January – February IPO window was essentially shut, creating a backlog of filings going into mid-March once companies finalize audited financial statements.

Which Companies are Especially Vulnerable During a Shutdown?

Portfolio companies with limited IPO windows based on external or other factors (e.g. oil and natural gas prices and clinical trial results)

Private equity funds that need to exit their investments in the short term due to reaching end term of fund

Companies desperately in need of capital in the short term

Less established companies

*Nasdaq CEO Adena Friedman during a panel at the World Economic Forum in Davos, Switzerland.

** Could the Government Shutdown Affect IPOs?, Knowledge@Wharton Finance Blog of the Wharton School of the University of Pennsylvania (January 2019).


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EGC Status and its Benefits

What is an Emerging Growth Company (EGC)?

• An EGC is a company with less than $1.07b in annual gross revenues in its most recently completed fiscal year.

• Based on a review of IPOs from 2014 through September 2018, Ernst & Young found that companies filing as EGCs accounted for more than 85% of the IPOs in each year.*

What are the benefits of EGC status?

Research and Investor Access

• Research may be published on EGCs at any time

• EGCs may test the waters to ascertain investor

interest

Relaxed Prospectus Disclosure

• Only 2 Years of Audited financials required

• Relaxed accounting standards

• No audit firm rotation requirements

• No Compensation Discussion and Analysis

disclosure required

Reduced Post-IPO Reporting

Requirements

• Say on pay vote not initially required

• Auditor attestation on effectiveness of internal

controls not required

When Does a Company Stop Being An Emerging Growth Company?

The earliest of:

Last day of first fiscal year inwhich gross revenue is > $1.07b

Last day of fiscal year that is 5 yearsafter date of first public equity sale

Date on which the company has issued more than $1b in non-convertible debt in the preceding 3 year period

Date on which the company becomes a large accelerated filer: Equity held by non-affiliates > $700m Subject to reporting requirements for 12

calendar months Filed at least one Annual Report


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Efforts to Revive the IPO MarketExpansion of Confidential Review Process

• All companies may file IPO registration statements confidentially regardless of their prior year’s revenues.

• Exchange Act registration statements, such as those used in spin-off transactions, may be filed confidentially as well.

• Confidential review also is available for the initial submission of draft registration statements for most other offerings made during the first twelve months following an IPO.

Reduction in Financial Statements Burden• Consistent with the expansion of the confidential review process, all companies may now may omit

financial information from confidentially filed draft registration statements to the extent they reasonably believe the omitted information will not be required when the registration statement is publicly filed.

• EGCs, however, remain the only type of issuer that can omit annual financial information from publicly filed registration statements.


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Efforts to Revive the IPO MarketStreamlining of Disclosure Requirements

• For certain disclosure requirements the SEC:

deleted those disclosure requirements that convey reasonably similar information to or are encompassed by the disclosures that result from compliance with overlapping U.S. GAAP, IFRS or SEC disclosure requirements; and

integrated those disclosure requirements that overlapped, but required information that was incremental to, other SEC disclosure requirements.

Expansion of Testing-the-Waters Investor Access?

• In 2018, the U.S. House of Representatives passed legislation to allow all companies to assess the interest of, or “test the waters” with, certain investors before launching an offering.

• The U.S. Senate, however, did not vote on the legislation, so it remains to be seen whether this benefit will be expanded to non-EGCs.

Part Three:Public Company Governance in Sponsor-Backed IPOs

Public Company Governance in Sponsor-Backed IPOs

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• Survey of Certain Governance Provisions in Sponsor-Backed IPOs

• “Controlled Company” Exemption

• Director Independence Requirements

• Proxy Advisory Firms


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Survey of Certain Governance Provisions in Sponsor-Backed IPOs

• Surveyed Companies:

We surveyed governance arrangements put in place as part of 41 private equity-backed IPOs.*

• Key areas of governance focus include:

“Controlled company” exemption; Board and committee nomination rights; Veto rights over the public company taking certain actions post-IPO; Anti-takeover provisions; Corporate opportunity waivers; and Information and access rights.

* Survey was limited to U.S.-incorporated non-SPAC companies that have undergone IPOs in 2017 and 2018 with a deal size of $150 million and above based on the data obtained from PitchBook.


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• Key Findings:

Controlled Company Exemption: Of the 30 sponsor-backed companies (73%) that were “controlled” post-IPO, all but one of them disclosed that they will or may avail themselves of at least some “controlled company” exemptions available under applicable listing requirements.o See slide 29 for additional details.

Board and Committee Nomination Rights:o In 76% of surveyed companies, sponsors secured contractual rights to nominate or designate

directors to serve on the public company’s board of directors following an IPO. ‒ At about half of the companies with board nomination rights, sponsors had the right to appoint at least one

director designee to one or more committees and/or the right to elect the chairman of the board.

Veto rights over the public company taking certain actions post-IPO:o In about 59% of surveyed companies, private equity sponsors secured shareholder consent or

veto rights over the public company taking certain post-IPO actions (e.g., increasing or decreasing size of the board, dividend payments, hiring/firing CEO, bylaw and certificate amendments, incurrence of debt, equity issuances, certain M&A rights, etc.) as long as sponsor(s) owned a certain percentage of shares of the company.


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• Key Findings (cont.):

Anti-takeover provisions: o Classified Board: In 76% of surveyed companies, sponsors used a classified board structure for the newly-public

company. None of these companies included a sunset provision for the classified board structure.o Written Consent Right: 63% of surveyed companies permitted action by written consent in lieu of a shareholder

meeting if sponsor ownership is above a certain threshold. Once sponsor ownership falls below a certain threshold, the right goes away.

o Special Meeting Right: Similarly, 66% of surveyed companies gave stockholders or sponsors a special meeting right as long as sponsor ownership is above a certain threshold. At most of these companies, once sponsor ownership falls below a certain threshold, the right goes away.

o Supermajority provisions: 83% of surveyed companies had one or more “springing” (i.e., when sponsor ownership falls below a certain threshold) supermajority vote requirements for shareholder amendments of their certificates of incorporation and/or bylaws and/or specific provisions in these organizational documents.

o Delaware General Corporation Law Section 203: Of the 38 surveyed companies incorporated in Delaware, 87% elected not to be governed by DGCL Section 203, which restricts business combinations with “interested” shareholders. However, 58% of these companies included contractual provisions that mirrored Section 203 but specifically exempted sponsor(s) from the definition of an “interested stockholder” or included “springing”

DGCL 203 provisions once sponsor ownership falls below a certain threshold.


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• Key Findings:

Freedom to Pursue Corporate Opportunities: o Only 4 surveyed companies did not explicitly grant the sponsor freedom to pursue any

business opportunity or interest, even if such opportunity or interest is in the company’s line of business and may be of interest to the company (3 of them were not controlled post-IPO).

Information and Access Rights: o About 57% of surveyed companies granted explicit rights (typically in a stockholders’

agreement) to sponsors to obtain company information directly from the company or rights of access to the company’s senior management.

– At most of the companies that did not explicitly grant information and access rights, sponsors typically had board nomination rights.


Gibson Dunn 29

“Controlled Company” Exemption

• Sponsor-backed IPO companies typically avail themselves of at least some “controlled company” exemptions available under applicable listing requirements:

Definition: A controlled company is a company in which more than 50% of the voting power for election of directors is held by an individual, a group or another company.

Exemption: Provides for an exemption from listing exchange requirements of having: (i) majority independent directors; (ii) independent nominating and corporate governance committee (if there is such a committee since Nasdaq rules permit independent directors to oversee nominations instead); and (iii) independent compensation committee.

Disclosure Requirement: A company must disclose in its pubic filings that it is a controlled company and the basis for making that determination.

Marketing Impact: The underwriters will advise about any potential marketing impact of use of controlled company exemption.


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“Controlled Company” Exemption

• These companies must continue to follow other general listing stock exchange rules with respect to:

Audit Committee Requirements: Qualifications and heightened independence requirements (subject to the transition rules applicable to all newly public companies):

o At least one independent director at the effective time (Nasdaq) or listing (NYSE).

o Majority of audit committee must consist of independent members within 90 days of the effective date

o All independent directors within one year from the effective date (must be at least three members).

Other Applicable Provisions: Code of conduct, corporate governance guidelines (NYSE), executive sessions, website posting requirements, etc.


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Director Independence Requirements

Nasdaq / NYSE Rules:

Director Independence

Nasdaq / NYSE / SEC Rules:

Audit Committee Member

Nasdaq / NYSE / SEC Rules:

Compensation Committee Member

Nasdaq:Subjective standard: Board must determine director has no relationship that would interfere with the exercise of independent judgment.Objective standards:• has not been an employee, and family member has not been an

executive officer, of the company in the past three years; • does not accept (and family member in executive officer capacity)

does not accept, and has not accepted in the past three years, compensation over $120K outside of director compensation;

• certain employment and former employment at outside auditors; • certain interlocks, and • certain affiliations with entities received or made payments to the

company exceeding certain $ or % of consolidated gross revenues.

NYSE:Subjective standard: Board must determine that director has no material relationship with the company.Objective standards: Similar to Nasdaq standards above with a few differences (e.g., type of affiliation with entities, thresholds w/r/t payments to and from entities, treatment of charitable contributions).

Nasdaq and NYSE:Heightened independence requirements (in addition to standards on the left): Must meet SEC Rule 10A-3 independence requirements:• Cannot accept any advisory, consulting or other

compensatory fees from company (other than for director service or fixed retirement payments for past service); and

• Cannot be an affiliated person of company.*

Additional Nasdaq requirements: Nasdaq additionally disqualifies any director who has participated in preparation of company’s or any subsidiary's’ financial statements within past three years.

* A director who is an employee of an “affiliate” (i.e., 10%+ beneficial owner) is presumed to be an “affiliate.” For this reason, “sponsor directors” often do not serve on audit committees.

Nasdaq and NYSE:Board must consider 10C-1 factors:• Source of compensation (e.g.,

consulting, advisory or other compensatory fees paid); and

• Affiliation with the company, a subsidiary, or an affiliate.*

Section 16 “Non-Employee” Director:

• Not current officer; and• No direct or indirect comp for non-

director services; and • No interest in RPT under Item 404 of

Reg S-K.

* These factors will not automatically preclude a “sponsor director” from being deemed independent.


Gibson Dunn 32

Proxy Advisory Firms• Institutional Shareholder Services (“ISS”) and Glass Lewis

Director Independence and Committee Composition: Both ISS and Glass Lewis have their own proxy voting guidelines when it comes to board and committee composition. o ISS does not have an exception for controlled companies and expects the majority of directors and committees to

be independent, regardless of the controlled company status. o Glass Lewis, on the other hand, generally refrains from making recommendations on the basis of governance

standards (e.g., board independence, committee membership and structure (except audit committee), meeting attendance, etc.) when the company is “controlled”.

Anti-Takeover Provisions:o ISS will recommend voting against the re-election of newly-public company directors who, prior to or in connection

with their company IPOs, unilaterally adopted bylaw or charter provisions that ISS believes are generally adverse to shareholder rights (e.g., supermajority vote requirements to amend the company’s charter or bylaws, prohibition on written consent and/or special meeting right, a classified board structure or a multi-class capital structure). ISS will take into account a “reasonable” sunset provision on these restrictions.

o Glass Lewis has a similar policy, except Glass Lewis will refrain from making a negative recommendation if the board: (i) also commits to submitting the anti-takeover provision to a shareholder vote at the company’s first annual meeting following the IPO; and (ii) provides a sound rationale or sunset provision for adopting the anti-takeover provision in question.

Part Four:Post-IPO Investment Management and Opportunities

Post-IPO Investment Management and Opportunities

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• Selling Shares after the IPO

• Private Equity Investments in Public Companies

• Private Equity Joint Ventures with Public Companies


Gibson Dunn 35

Selling Shares after the IPO

• Private Sale Transactions Could be targeted sales or larger PIPE Typically less expensive than a public sale, downward pricing impact Sale restrictions placed on affiliates of the company

o Timing, volume, and manner of sale restrictionso Notice requirements (Form 144)

• Secondary Public Offerings Allows for sale of larger number of shares Registered and orderly sale of sponsor’s shares to public (organized by underwriters) Registration rights require shelf registration statement

o Demand registrationo Piggyback on issuer’s offerings

Subject to shortcomings and risks of public offerings

• Consider disclosure and IR impact on company


Gibson Dunn 36

Private Equity Investments in Public Companies

PIPE Investments

• Private equity firms appear generally to expect increased investing activity in 2019

• Given the decline in and volatility of the stock market, a firm’s investments options include purchasing publicly traded equity

• PIPE transactions are an increasingly popular means by which private equity firms purchase publicly traded equity

• Considerations for PIPE transactions include:

Pricing and terms Stockholder approval requirements Third-party consents HSR filings Standstills, lock-ups and registration rights


Gibson Dunn 37

Private Equity Investments in Public Companies

Convertible Preferred Equity Investments

• Terms are negotiated and tailored

• Public companies selectively turning to institutional investors

• Optional and Mandatory Redemptions

• Optional and Mandatory Conversion Rights

• Change of Control Protection

• Debt Rating Change Protection

• Liquidation Preference

• Voting Rights (e.g. board representation and consent rights on debt incurrence)

• Minority Protections

• Registration Rights


Gibson Dunn 38

Private Equity Joint Ventures with Public Companies

• Joint venture style equity investment in high growth companies or companies that offer strategic partnership for a portfolio company

• Considerations include exit, return structure, governance protections and project timeline

9

7

16

3

10

4Business Products andServices (B2B)Consumer Products andServices (B2C)Energy

Financial Services

Healthcare

Information Technology

7.0

6.0

3.0

2.0

5.0

5.0

3.0

7.0

11

.0

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

0

2

4

6

8

10

12 US PE-Strategic JV Activity US PE-Strategic JVs by Sector (2009 – 2018)


Our Offices

Gibson Dunn 39

BeijingUnit 1301, Tower 1China Central PlaceNo. 81 Jianguo RoadChaoyang DistrictBeijing 100025, P.R.C.+86 10 6502 8500

BrusselsAvenue Louise 4801050 BrusselsBelgium+32 (0)2 554 70 00

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Los Angeles333 South Grand AvenueLos Angeles, CA 90071-3197+1 213.229.7000

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Washington, D.C.1050 Connecticut Avenue, N.W.Washington, D.C. 20036-5306+1 202.955.8500

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