Ownership
Private companies are generally owned by the persons and entities who establish them along with those invited to join. This usually results in ownership being concentrated among a handful of shareholders known to each other as the shareholding in the company is not open to acquisition by the public.
Ownership in listed companies differs in that their shareholding can be traded publicly by people outside of the company. This means the company can be owned by members within the organization as well as members of the public. Listed companies also tend to be larger business entities as a result of their ability to obtain capital from the public, in turn often making M&A transactions involving listed companies more complex and subject to regulatory oversight by bodies such as the Competition Commission and Takeover Regulation Panel than a typical private company M&A.
Acquisition
M&A discussions in private companies often involve direct negotiations between the potential buyer and the company’s owners. These negotiations can deal with a large variety of aspects including how the company might be sold, the selling price, due diligence on the company, valuation of the company, etc. The acquisition of a private company is normally concluded by way of one of the following types of agreements:
A sale of shares in terms of which the owners of the company sell the shares they hold in the company to the purchasers;
A subscription agreement in terms of which the purchaser subscribes for newly issued shares in the company, while other existing shareholders remain the owner of their shares; or
A sale of business, in terms of which the business and/or assets, or a combination of both, within the company are sold to the purchaser as a going concern.
M&A in the landscape of listed companies, differs somewhat from the above in that the preferred means of obtaining control of a listed company is through a scheme of arrangement or a general offer, although other methods also exist.
In a scheme of arrangement, the board of the company proposes a scheme requiring a 75% shareholder approval in a general meeting of the company. This approach is suitable for consensual transactions but not for hostile bids, as it requires the cooperation of the board of the company. The significant advantage of a scheme of arrangement lies in the fact that all shareholders’ shares are acquired upon approval, including those who voted against the arrangement, with court approval only required if 15% oppose the resolution. This makes a scheme of arrangement the widely adopted method for achieving control acquisition in South African public companies.
A general offer, on the other hand, allows the bidder (purchaser) to extend an offer to acquire all shares of a target public company, regardless of the cooperation of the company’s board, however, the offer may be made subject to a minimum acceptance level by the company’s shareholders.
Confidentiality and privacy
M&A in private companies usually enjoy a lower level of regulatory scrutiny compared to public companies due to various factors. Private companies for example do not have to meet the Johannesburg Stock Exchange’s listing requirements and private companies may not exceed the Competition Commission’s monetary thresholds for notification as easily as listed companies. This sets the stage for a more confidential negotiation process limiting the parties from uninvited public scrutiny. Listed companies on the other hand are obligated to disclose significantly more information to the public as part of the M&A including also regulatory approvals which require substantial disclosures to be made.
These are just a few of the most common differences between M&A transactions of private and listed companies. Each type of M&A certainly has its unique type of challenges and processes and it is vital that these be recognised by the stakeholders when considering a M&A. Private companies may benefit from more confidential negotiations and flexible deal structures, while listed companies will have to navigate potentially complex regulatory and corporate landscapes through schemes of arrangement and general offers. Legal advice is therefore crucial before any M&A process commences.
For guidance or assistance with your transaction feel free to make contact with our M&A Team who can help establish the correct approach for your transaction.
Visit our M&A Team page.
Disclaimer: This article is the personal opinion/view of the author(s) and is not necessarily that of the firm. The content is provided for information only and should not be seen as an exact or complete exposition of the law. Accordingly, no reliance should be placed on the content for any reason whatsoever and no action should be taken on the basis thereof unless its application and accuracy have been confirmed by a legal advisor. The firm and author(s) cannot be held liable for any prejudice or damage resulting from action taken on the basis of this content without further written confirmation by the author(s).
