Clubbing in a Brave New World
The most recent issue of the excellent Deal Lawyers newsletter has a piece by Geoffrey Levin at Kirkland about club deals.
It discusses the clubbing phenomenon from the standpoint of large public company sellers, noting that clubbing can be a great tool to coax out the best offer from a field of bidders and satisfy Revlon fiduciary duties. Clubbing has been written about extensively as a way for private equity firms to make bids they otherwise might be loathe to consider. Levin points out that sellers have to watch out that clubbing doesn't dry up the pool of bidders. He goes through a number of useful provisions to insert in the seller's confidentiality agreement to strike the right balance between fostering club land and not getting crushed in the process.
Club deals get a lot of press, though they are far more prevalent at the top end of the private equity market than elsewhere. Most deal makers naturally would prefer not to share the fruits of a successful bid with other firms. Also, clubbing gets its popularity from the fact that target companies currently outstrip the ability of existing firms to swallow deals whole. As fund sizes get larger, that may not be such a problem in the future. Finally, a lot of syndication of risk in large deals can go on behind the scenes, as firms sell off chucks of equity exposure in private transactions.
One thing that may come of clubbing in the not so distant future is the merger of large private equity firms. By working together through the purchase, management and sale of deals, PE firms will get to know one another and see the benefits of even closer affiliations. If you think about the large PE firms as the premier capital aggregators of the 21st Century, you might conclude that they will become the Goldmans of the future.
It discusses the clubbing phenomenon from the standpoint of large public company sellers, noting that clubbing can be a great tool to coax out the best offer from a field of bidders and satisfy Revlon fiduciary duties. Clubbing has been written about extensively as a way for private equity firms to make bids they otherwise might be loathe to consider. Levin points out that sellers have to watch out that clubbing doesn't dry up the pool of bidders. He goes through a number of useful provisions to insert in the seller's confidentiality agreement to strike the right balance between fostering club land and not getting crushed in the process.
Club deals get a lot of press, though they are far more prevalent at the top end of the private equity market than elsewhere. Most deal makers naturally would prefer not to share the fruits of a successful bid with other firms. Also, clubbing gets its popularity from the fact that target companies currently outstrip the ability of existing firms to swallow deals whole. As fund sizes get larger, that may not be such a problem in the future. Finally, a lot of syndication of risk in large deals can go on behind the scenes, as firms sell off chucks of equity exposure in private transactions.
One thing that may come of clubbing in the not so distant future is the merger of large private equity firms. By working together through the purchase, management and sale of deals, PE firms will get to know one another and see the benefits of even closer affiliations. If you think about the large PE firms as the premier capital aggregators of the 21st Century, you might conclude that they will become the Goldmans of the future.
