Recent data suggests that mergers and acquisitions (M&A) activity has experienced a significant slowdown in the wake of a post-COVID boom, falling by as much as 44% in global value during the first few months of 2023. This data was revealed in a report issued by Bain & Company.
Given this trend, private equity sponsors aiming to establish liquidity for their funds may need to consider alternative strategies instead of merely selling their entire portfolio to third parties. Crucially, these lenders must understand the specific definitions and implications of a “change of control” in this evolving context.
A change of control typically refers to a shift in the ownership or influence of a company that leads to a new controlling entity or individual. This can occur through various methods, including M&A, a change in the majority of board directors, or significant shifts in share ownership.
Understanding and interpreting a “change of control” clause in a contract or agreement is vital for all parties involved. It sets out any rights, obligations, or restrictions that come into effect in the event of such a change. Getting this wrong can have serious contractual and legal implications.
The theme of ‘change of control’ in private credit landscapes was explored propoundly in a recent article titled ‘Private Credit Deep Dives – Change of Control’, written by Proskauer Rose LLP and available at JD Supra.
In light of the current market conditions, a comprehensive understanding of ‘change of control’ provisions in contracts is critical. It is a pertinent issue for both legal professionals working on M&A deals and lenders in private equity spheres. This knowledge will allow them to navigate any potential complexities and roadblocks effectively and ensure a smooth transition during any change of control process.
Significant market shifts require adaption and innovation, and the recent downturn in M&A activity may necessitate a rethink in strategies. Legal professionals should stay abreast of these changes and be prepared to provide tailored advice and solutions to their clients in these challenging times.