In this article, the authors share their thoughts on the IPO and take-private markets in Bermuda, as these are two areas in which they are frequently engaged in Asia.
Take privates: what we’ve seen and what’s to come
2019 and 2020 were bumper years for take-private transactions globally, representing the most active years since 2007, with Bermuda-incorporated listed companies involved in a number of the largest of these deals, which included:
- Apollo’s US$2.6 billion acquisition and take private of Aspen Insurance, previously dual-listed in New York and Bermuda;
- The acquisition and take private of aircraft leasing major Aircastle in a US$2.4 billion deal involving its delisting from the NYSE;
- The HK$4.6 billion (US$593,000) acquisition of TPV Technology by CEIEC (and its concert parties) and the company’s dual delisting from the Hong Kong and Singapore stock exchanges; and
- The CVC-backed bid for Hong Kong-listed IT Limited, announced at the end of 2020.
What is driving the rush to the listco exit ramp? A convergence in the valuations of public companies – particularly in sectors adversely affected by the pandemic – with their private company analogues, record levels of private equity dry powder, relative ease (and affordability) of fundraising, increasing activism of minority public company shareholders, geo-politics, and regulatory push factors all play their part.
Much of the focus of take-private activity, particularly involving businesses operating in Asia, has been on US-listed companies in the mid and small-cap space. With Chinese businesses arguably the principal targets of the US Holding Foreign Companies Accountable Act, passed in late 2020, this trend seems likely to continue. However, the authors also see increased take-private activity in Hong Kong and elsewhere.
A number of factors will be relevant to structuring a take private, including: Local law and listing requirements; the nature of the proposed acquisition; the proportion of the shares controlled by the bidder group; and anticipated public and independent shareholder take-up. In broad terms, it is more common to see mergers used in the North American markets, whereas a scheme remains de rigueur in Hong Kong.
Most take-private proposals have the company’s founders to the fore – even if it is private equity underpinning the bid – and they nearly always involve cashing out the public shareholders, with founders and/or senior management rolling over their shares into the bidding company. In weighing up a take-private proposal, it is crucial for the board to ensure that its fiduciary duties are discharged appropriately and independently.
This involves considering the bid in the context of what, in the reasonable and objective opinion of the directors, is in the best interests of the company as a whole (including all of its present and future shareholders). The board of directors of a target company is well advised to establish a special committee of independent directors to consider and negotiate the proposal.
Bermuda law does not require active “go-shop” provisions, as seen in Delaware, for example, requiring the special committee to actively solicit competing bids. However, it is increasingly common for the deal terms to include a “fiduciary out”, permitting the special committee to speak to other potential bidders and ultimately to switch to a competing bid if it is in the interests of the company to do so, and corresponding break fee clauses. Take care to ensure that these provisions are enforceable as a matter of Bermuda law, and consistent with market practice.
Although it is difficult to forecast anything with certainty in the current climate, we expect the upward trend of take-private transactions to continue throughout 2021. With close to 50 Bermuda companies listed on the NYSE and Nasdaq combined, and just over 20% of the companies listed in Hong Kong incorporated in Bermuda, the jurisdiction will remain at the forefront of the take-private wave.
Global and Hong Kong IPO outlook
As covid-19 hit the markets, IPO activity was dampened during the first half of 2020, with companies entering resilience mode and focusing on weathering the storm, both financially and operationally. Based on the latest estimate, the Nasdaq, Hong Kong and Shanghai are among the top three exchanges in 2020 for IPO fundraising and number of listings.
Hong Kong’s market, which is dominated with listed companies incorporated in offshore jurisdictions like Bermuda and the Cayman Islands, has continued to attract up and coming companies from around the world, with a number of homecoming listings.
The strong bounce-back of the Hong Kong IPO market is backed by HKEx data: Funds raised through Hong Kong IPOs in 2020 totalled HK$397.5 billion, an increase of 27% on HK$314.2 billion in 2019. Total funds raised on the HKEx in 2020 was HK$743.7 billion, an increase of 64% on HK$454.2 billion in 2019.
Accessing capital markets from Bermuda by way of IPOs
Thanks to the strong historical and commercial ties between Hong Kong, a former British colony, and Bermuda, an overseas territory of the UK, there are more than 506 Bermuda companies listed on the Hong Kong Stock Exchange, accounting for almost 20% of the total number of listed companies in Hong Kong. Bermuda remains the second-largest domicile of Hong Kong Main Board and GEM listed companies.
Bermuda companies are also listed on a number of other stock exchanges including the Stock Exchange of Singapore, the Toronto Stock Exchange and the London Stock Exchange. In recent years, the number of Bermuda companies pursuing an IPO on the NYSE or Nasdaq has remained relatively stable. For example, Walkers acted as Bermuda counsel to GAN Limited on the successful restructuring of GAN plc, and the subsequent US$62.4 million fundraise on Nasdaq Capital Market under the symbol GAN in May 2020.
To watch lawyers share more details about the wining deals,
please visit Deals of the year 2020
Nicholas Davies is a partner in the corporate and investment funds groups of Walkers’ Hong Kong office. He can be contacted on +852 2596 3386 or by email at email@example.com
Jo Lit is also a partner in the corporate and investment funds groups of Walkers’ Hong Kong office. She can be contacted on +852 2596 3383 or by email at firstname.lastname@example.org