Afternoon Class Group 4 Private Equity Value Chain

Chung Hee Seung (Research in chapter 2)
Liu Zhong Lei(Research in chapter 3.1 and 3.2)
Kim Do Young(Research in chapter 1)
Kwon Hong Kyung(Research in chapter 4)
Seo Jung Woo(Editor in chief, research in chapter 3.3)
Um Ju Sung(Research in chapter 4)

Table of Contents

1 Targeting

1.1 The first part deals with PE investment at the early pre-investment stages.

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What is the targeting company for PE investors?
Many companies are weak in this area. PE investors watch for a chance. The observed deficiencies;

  1. Having no apparent strategy, relying instead on an opportunistic approach to business
  2. Having a broad statement of platitudes that makes a good ‘sound bite but that is either not measurable or contains enough ambiguity to accommodate an array of approaches, styles and performance results.
  3. Having an excessively detailed strategy statement, possibly with quantified targets, but without an overarching framework to guide managers in ways to set priorities and transform action into promised results
  4. Having a strategy that is very good in most respects but that is based on premises concerning the enduring nature of certain market trends or trends in technology that do not hold up under closer scrutiny. This is one of the most difficult types of deficiency to address with managers who may be defensive concerning their ‘blind spots’.

The PE investor has a potentially valuable role to play in ensuring that prospective and portfolio investee companies are vigilant concerning threats and opportunities within the context of competition that is unrestrained by geographical origin.

1.2 At the early pre-investment stages – either at the proposal or possibly the due diligence stage for example – the PE investor needs to be able to assess several things simultaneously. PE investor should assign priority to business strategy.

  • The skills, competencies, track record and personal attributes of the management team.
  • The current business strategy and the value proposition inherent therein.
  • How likely the strategy and value proposition are to achieve the kind of equity hurdle rate he and his LPs require. He should also ascertain the scope for the company to make a strategic move to a blue ocean strategy characterized by significant value innovation.
  • Irrespective of whether the strategy is competitive or niche-based, the robustness of the higher returns compared with scenarios for when things do not go as well as planned.

1.3 Working guidelines for assessing strategy

For the PE investor, approaching the issue of competitive advantage and soundness of business strategy should be a process involving a succession of approximations.
As early as the investment proposal stage, the PE investor should be able to get an early grasp on the nature of the competitive environment and where the prospective investee company stand s in relation to its competitors for each of the main markets, in geographic and product space, in which it is doing business or intends to do business.
While the appraisal and due diligence phases should of course cover and refine information on these issues, even a granular view of the company’s competitive position should be considered essential as a key determinant of whether or not the PE investor should proceed to the due diligence phase.

1.4 Accurate diagnosis of a company’s problems

Basically, there are three main ways that strategy deficiencies will cause business failure

  1. when strategy is good but execution has failed
  2. when an inappropriate or faulty strategy has been effectively administered
  3. when an inappropriate or faulty strategy combines with ineffective or failed strategy execution.

In smaller companies, the dichotomy between those responsible for formulating strategy and those responsible for executing it is less pronounced than in larger companies with more employees, greater specialization and more will-defined organization structures.

1.5 Company-level due diligence topics

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  1. Nature of the product or service provided.
    • Description of product or service features.
    • Distinguishing attributes of products or services from those of competitors.
    • Strength of brand recognition.
    • Lifecycle of each product or service
    • Description of the ‘business’ in which the company is involved where products and services are multiple
  2. Industry and market for each product or service
    • Description, approximate sizes and numbers of other producers or suppliers of competing goods or services.
    • Description of the significance of imports of competing goods or services.
    • The importance of , including sensitivity of demand to, price in determining sales of the product or service.
    • Organization of the market and industry in terms of supply chains, marketing channels, selling arrangements, regulatory oversight, and existence and importance of resale markets.
    • Main competitors, their market shares, nature of competition.
    • Description of barriers to market entry.
  3. Company’s own sales and marketing arrangements.
    • Classification of company’s main customers (industrial buyers who add value, wholesalers, retailers, corporate and/or governments as end consumers, private individuals as end consumers.)
    • Size and description of salesforce.
    • Compensation and incentives applicable to salesforce.
    • Marketing channel management
  4. Value drivers
    • Description of costs in terms of function (procurement, production, quality control, marketing, sales, administration , serving and so forth)
    • Description of costs in terms of fixed and variable components.
    • Pricing analysis, contribution analysis, breakeven analysis.
    • List of main value drivers ranked by importance and approximate sensitivity.
  5. Profiles, attributes/competencies and background checks
    • Board directors and observers
    • Management team
    • Employees
    • Sponsors
    • Other shareholders
    • Key suppliers and service providers
    • Key customers
  6. Liabilities and contractual undertakings
    • Description of debt outstanding
    • Description of all other liabilities ( including deferred taxes, outstanding stock options, deferred service and royalty payments).
    • Description of all guarantees extended by the company and off balance sheet items
    • Description of all continuing leases on property, equipment, products, technologies and business processes.
    • Description of all outstanding and continuing medium to long term employment contracts.
    • Description of all outstanding and continuing medium to long term business contracts
  7. Company finances
    • Capital structure and relative importance of debt, equity, quasi-debt and quasi-equity within the capital structure.
    • Cash flow analysis
    • Financial risk and financial strength analysis
    • Analysis of the adequacy of financial controls.
  8. Corporate governance
    • Analysis of specific limitations regarding shareholder tights arising from provisions in subscription and shareholder agreements
    • Composition of the board in terms of number and percentage of total board directors who are independent.
    • Analysis of board members’ significant interests in other companies or institutions.
    • Adequacy of board minutes.
    • Analysis of participation and voting record of board directors.
    • Composition of board committees.
    • Adequacy of preparation of calendar of board meetings covering the full range of key issues on which the board should be involved.
  9. Application of norms
    • The application of internationally accepted norms with regard to : environmental protection and conservation, worker and consumer safety, and social impact.
  10. Rule of law
    • Social and official commitment to upholding the rule of law.

Source:Eric D. Cruikshank (2006). Private Equity lessons from Mature and Emerging Markets,

written by Kim, do young on 1:30 p.m, July 29, 2009

2 Deal Structuring

2.1 Deal structuring Ⅰ

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2.1.1 Elements of a deal

The following are some of the main elements of a transaction or deal that a PE investor expects to be addressed in any prospective investment.

  • Market appeal. Is the product line and the associated business one that has compelling market appeal? In other words, how strong is the story line of the new venture or the franchise value of the existing enterprise?
  • Business organization. What is the form of business organization (for example, type of corporation, partnership, LLC, trust or other such legal form) proposed for the venture or enterprise and the justification for it?
  • Growth prospects. What are the prospects for sales and earnings growth? Near-term? Long-term? What are the main underlying assumptions?
  • Management quality. How strong is the management team expected to deliver the prospective performance? What are the management team’s weak points or skill gaps? How can these be best covered off?
  • Management remuneration. How is management to be remunerated? Is there a clear-cut system for benchmarking performance, particularly if management is to be partially compensated on the basis of performance? What penalties are spelled out in the management employment contract?
  • Other stake holders. Who are the other stake holders(creditors and equity investors)- both currently and contemplated?
  • Dependence on major factors. In terms of realizing the potential (or expected) growth, how dependent is success on major factors – both external ones beyond the control of the stake holders as well as internal ones representing actions that the latter need to take – that have yet to take place? Examples of external factors are government regulatory approvals or positive findings in proving reserves in extractive industries. Examples of internal factors can include owner actions aimed at ensuring that share holders and creditors contribute subsequent rounds of funding on time as required.

2.2 Deal structuring Ⅱ

  • Sources of risk. What are the main issues and principle sources of risk and uncertainty at play that may affect realization of the potential or expected sales and earnings growth over time ?
  • Representations and warranties. What representations and warranties (R&W) is the investee (target) company prepared to provide and what indemnification is to be paid for breaches?

What is the length of the R&W survival period? Does indemnification involve a deductible or a ceiling? How is the indemnification obligation to be secured? And are all liabilities to be assumed or only specific ones?

  • Percentage return. What can the common equity investor expect to make (percentage return) over the life of his investment?
  • Early return of capital. Does the plan and proposed deal structure provide for early return of the equity investor’s capital?
  • Simple equity investment? Do the economics of the venture or enterprise support simple equity investment in a way that is likely to satisfy both buyer and seller regarding the expected risks relative to reward? If not, is there a role for debt and/or quasi-equity?
  • Deal cash flow and debt support. Does the projected cash flow of the venture or enterprise support debt on its own (in terms of amount of incoming cash flow available for debt service and its timing) or would it require enhancement? If enhancement is required, what on balance sheet enhancement can take one of several forms, the most common of which is a mortgage or pledge over specific, tangible assets. An off-balance sheet enhancement can also take any of several forms such as standby letter of credit guaranteeing a loan or other type of debt instrument or a credit facility.
  • Waterfall of payments. Is the waterfall of payments to creditors and shareholders clear and does it adequately address the risk and return preferences of each type? Is compensation for the amount and category of risk that each type of security interest in the enterprise entails adequately priced?
  • Agency costs. How will agency costs be minimized or at least kept under control? In the case of a closed club of investors, one way would be to require each investor to take vertical tranche of debt, quasi-equity and common equity within a specified band of proportionality. Another way is to attach equity kickers to the more senior securities. Another device is the allocation of board seats.

2.3 Deal structuring Ⅲ

  • Tax, accounting and legal aspects. Have the tax, accounting and legal aspects of jurisdiction, including bodies that regulate the issuance of financial securities, been adequately taken into account in structuring the deal?
  • Main contractual undertakings. Is there a clear and fairly thorough description of the main contractual undertakings needed to run the venture or enterprise and to manage risk? For example, these should include at minimum buy-sell agreements, outsourcing arrangements, key-man insurance, convertible preferred stock and any other securities with conversion features, management contracts, plus technology, business or brand-name licensing arrangements.
  • Terms and conditions for earn-out and vesting. To the extent that valuation involves intangibles, imputed values and the capitalized value of future effort/contribution, are the terms and conditions for earn-out and vesting clear?
  • Subsequent capital injection. How will subsequent rounds of capital injection and the matter of potential stock dilution be handled specifically?
  • Ultimate disposition. Specific provisions to be included in the shareholder agreement governing the allocation of proceeds among company security holders to the extent that the company’s ultimate disposition could be either via a stock sale or alternatively an asset sale with company liquidation.
  • Closing conditions. As final safeguard prior to commitment, what closing conditions will permit the investor an ‘out’ if not satisfied at the time of closing? Examples include evidence of material and adverse change, unsatisfactory completion of due diligence, non-compliance with government regulations and laws, and special encumbrances such as failure to obtain necessary waivers and consents.

2.4 Conclusion of Deal structuring

As the owner-entrepreneur and the investors scrutinize how they see the company’s future unfolding over time, including an array of mutually exclusive possible outcomes raging form highly unfavorable, even if they agree on all the things that could potentially happen, that does not guarantee they will attach the same likelihood to each risk or uncertainty. Consequently, what each considers the appropriate discount of premium associated with the issues listed above is bound to vary. Instead of placing the full weight of such differences in some cases conditional on other things happening, that can address specific types of risk and uncertainty in ways that price alone cannot.
Without any attempt to treat the subject exhaustively, let us examine a few of the more typical issues that can be addressed through deal structuring.

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Source:Eric D. Cruikshank (2006). Private Equity lessons from Mature and Emerging Markets,

written by Chung, Hee-seung on 1:30 p.m, Aug 04, 2009.

3 Value Add

How do PEs add value to investee companies?
During targeting, a good number of opportunities and threats may arise. Once the PE investor has decided a target, it must make sure have a strong investment monitoring and supervision function in order to help the investee company turn these late-evolving opportunities and treats into value enhancing activities.

There some examples that a PE could develop as followings:

  • The introduction of new technologies(both process technologies and product technologies)
  • The emergence of a new competitor
  • Opportunities for improving efficiencies through acquisition on the part of the investee company
  • The opportunity associated with another company showing interest in acquiring the investee company.
  • Opportunities to enter new market.
  • Opportunities to form strategic alliances or other forms of business combination with customers, supplies, manufactures or providers of complementary goods and services

3.1 Functional areas for value addition

3.1.1 Marketing and selling

The PE investor could make significant contributions to enhancing the value of the investee company by providing advice and other types of help in implementing effective changes to the company’s marketing and selling activities. For example, improving effectiveness of the company’s marketing and distribution channels and making appropriate adjustments, enhancing product pricing can be introduced based on careful analysis of sub-product and market segmentation together with measurements of price and income elasticity.
Taking PC as an example, adding value activities could be providing complementary products or services, such as delivery options and reliability of promised delivery dates, quality and completeness of service and maintenance, attractive financing, facilities or guarantees for resale, or by innovative ways of ‘packaging’ these other attributes along with the commoditized product itself.

3.1.2 Sourcing of inputs

All companies need to develop global sourcing strategies. The PE investor should always be aware the options available both inside and outside of the county of domicile to develop its supply or sourcing strategy.

3.1.3 Introducing manufacturing or production efficiencies

The goal of the manufacturing or production team has traditionally been to simplify the fabrication and assembly processes to the maximum extent possible and achieve long production in order to defray the fixed component of unit costs over the largest production base possible.
The PE investor should consider the following costs:

  • Utilizing fabrication and assembly facilities
  • The working capital associated with maintaining raw materials
  • Sufficient end-product inventories for maintaining high standards of customers service

3.1.3 Business rationalization and operational restructuring

Choices involving the particular array of products and services to be made and the location of production and distribution facilities can involve varying degree of study and deliberation.
Since in most businesses, product and location choices represent major commitments of energy and resources, managers usually take such aspects of the company as givens and will work around them. The PE investor should shift away from choice that may be inherited from this rationale.

3.1.4 Financial restructuring

Rethinking the company’s business model in terms of products and services offered, competitive strategies, and organizational arrangements opens up both needs and opportunities for alternative financing arrangements.
Sources the PE investor could use are as followings:

  • International factoring
  • International securitization
  • Notes with various types of embedded options
  • Foreign exchange hedging instruments
  • Swaps, swaptions, credit derivatives and other type of alternative risk transfer instruments and techniques
  • Equity instruments, including carve-outs, tracking stock, split-offs, and exchangeable securities

3.1.5 Operational risk management

Operational risks could include but not limited the followings:

  • Natural or environmental causes
  • Mistakes and accidents
  • Non-linear systemic effects, like ‘bull-whip effect’
  • Malicious acts of disruption

The first two items could be reduced by insurance and the remaining risks could be reduced by building in back-up systems and well-focused redundancies, such as alternative sources of supply, alternative transportation and delivery arrangements, and information security measures.

3.2 Corporate Governance

The PE investor can add considerable value through participation in the direction of the investee company at the level of the board of directors and sub-committees reporting to the board. Even in cases where the investor has acquired a controlling interest in the company, the value proposition attached to good corporate governance is well placed. The market response is that sound structures and practices in connection with corporate governance are increasingly being recognized in both the market for private capital as well as in securities markets as important components of value.

Many investee companies are newly established companies that are seek expansion financing, and PE investor who is well-versed in corporate governance practice could add significant and enduring value.
BOD(Board of directors) is a critical part of corporate governance. Hereby we won’t state all the responsibilities of the directors. The responsibilities could be summarized to duties of care, loyalty and attention, including on behalf of the shareholders’ benefits, attending at board meetings, be familiar with company’s affairs, having a clear understanding of the range of topic son which the duty of attention must be focused.

The key stakeholders of a company include employees, customers, suppliers, the public and regulators, as well as creditors, including banks, bondholders and trade creditors. The PE investor who can effectively advise management and other board members on how to manage the potential risk of stakeholder liability will add substantial value.

Good governance is usually not that visible while bad governance, or at least the havoc it can wreak, it. In the connection, the PE investor should capitalize on the public relations value for the company of public disclosure of the improvements in corporate governance practice; this can greatly enhance the chances of finding buyers when it comes time to exit.

written by Liu, Zhong Lei on 10:00 p.m, Aug 04, 2009.

3.3 More on creating operating value

Most studies confirm that the best PE investors generate excellent returns on their investments, usually after a period of ownership of three to five years. Moreover, several studies have concluded that in the markets most thoroughly penetrated by PE players, job creation by PE-controlled firms significantly outpaces job creation in the rest of the economy.

The smartest PE investors have realized that the only way to reliably increase the value their portfolios is to maximize the operating value of the underlying businesses in them. For this reason, the best PE firms have shifted many of the resources that they once poured into financial engineering toward creating operating value – and they are doing it in a way that is more systematic, focused, and aggressive than the practices found in most companies. The need to provide strong returns to demanding limited partners (LPs) in a defined time frame creates a single-mindedness that fuels the rigor with which these less are applied.

3.3.1 Define the full potential

The target is increased equity value-how to turn $1 of equity value today into $3, $4, or $5 tomorrow. Strategic due diligence is the way t set the number, and growing cash flow by pursuing a few core initiatives is the way to get there

Conduct due diligence on yourself: think in terms of “strategic due diligence,” and take an outside-in view of:

  • Derived demand analysis (What are the true underlying drivers, how are they changing, and how will they affect demand?)
  • Customer analysis (What are this business’s customers going to do?)
  • Competitive analysis (What are this business’s competitors doing, and how does it stack up against this business?)
  • Environmental analysis (Are there technological, regulatory, or other issues or trends that may affect future performance positively or negatively?)
  • Micro economical analysis (How does this business really make money and where?)

Specifically define the full potential for a business: how high can cash flow grow?

Embrace bold moves and big changes, if such changes are required to achieve full potential.

Identify the three to five core initiatives, and specify what not to do.

Adopt a medium-term focus (three to five years).

Do a culture check: where is the momentum of the status quo coming from?

Act fast to do your due diligence – this is a priority.

Do it again two to three years from now.

3.3.2 Develop the blueprint

The blueprint is the road map for reaching your full potential-the who, what, when, where, and how. It zeroes in o the few core initiatives and delineates a step-by-step plan to turn them into results. The emphasis is o measurable actions

Develop a road map for your three to five key initiatives, and focus.

Start macro, and work down to what you will do differently o "Monday morning, 8 a.m."-that is, the actionable to-d list.

Be specific and pragmatic.

Let the facts win the day.

Create excitement and alignment.

Budget two to six months (at least the first time).

3.3.3 Accelerate performance

This involves molding the organization to the blueprint, matching talent to key initiatives, and getting people to own them. It also involves creating a rigorous program to achieve your ends-one that combines tools, discipline, and the monitoring of a few key metrics

Mold the organization around the blueprint.

Match talent to key initiatives.

Make someone own each activity.

Adapt program management tools-for example, a program office.

Monitor what really matters:

  • Operational indicators
  • Cash, not earnings
  • The critical few metrics

Use metrics to stay ahead of financial results.

Use rewards to motivate and align-that is, pay employees for what you want them to do.

3.3.4 Harness the talent

This requires creating the right incentives to recruit, retain, and motivate your best talent-and get them to think and act like owners. It also requires assembling a decisive and efficient board.

Acquire, retain, and motivate results-oriented people.

Share equity with key people.

Reward "boldness and success."

Invent creative compensation tools, tying equity to what you actually do-for example, phantom equity.

Assemble a value-added board-with bona fide experts.

Work the board-make it decisive and efficient:

  • Set up board subcommittees focused o key initiatives
  • Find ways to get the board to ask critical questions sooner

3.3.5 Make equity sweat

The challenge is to embrace LBO economics. This calls for managing working capital aggressively, disciplining capital expenditures, and working the balance sheet hard

Embrace leverage.

Focus on cash generation (to make debt pay).

Aggressively manage:

  • Working capital
    • Receivables / payables
    • Inventory
  • Capital expenditures
  • Other balance sheet assets
    • Unproductive equipment / facilities
    • Business / divisions that are under-performing or worth more to others
    • Traditionally fixed assets converted as sources of financing

Invest capital with discipline:

  • Think of your new capital investment as important as original investments.
  • Think of capital as also financed with debt.
  • Measure against realistic expectations.

Use new investments to"move the needle."

3.3.6 Foster a results-oriented mind-set

The goal is to inculcate PE disciplines so that they become part of th company's culture and create a repeatable formula for achieving results

Make it a repeatable formula.

Demand accountability.

Articulate and communicate.

Set the striking example.

Reset the standard.

Source: Orit Gadiesh and Hugh MacArthur (2008). Lessons from Private Equity Any Company Can Use

written by Seo, Jung Woo on 10:00 p.m, Aug 07, 2009.

4 Exit

The exit strategy is another possible way for PE investor to add value.

4.1 Exit channel: Employees

4.1.1 Advantages

  • Business stays with ‘known’ parties
  • Very often a positive tax treatment
  • Employee motivation with productivity increases

4.1.2 Disadvantages

  • Complex, expensive to establish and administer
  • Often involves contingent liability in form of providing buyback guarantee to employees leaving
  • Slow form of exit

4.1.3 Techniques

  • ESOP(employee stock ownership plan)
  • Stock bonus

4.2 Exit channel: Management

4.2.1 Advantages

  • Business stays with ‘known’ parties
  • Manage team can help with lining up lender or PE investor group
  • Maintains continuity and minimize costs and risks of business disruption during ownership transfer
  • Significant efficiency increases as owner-managers cut thrills and look for ways to improve margins
  • Can attract PE investors to provide growth capital in ways that other exits may not

4.2.2 Disadvantages

  • Lender requirements that management team contribute cash to cover significant percentage of purchase price may complicate transaction
  • Need for outside equity investor could create style or culture differences that are potentially disruptive
  • Collateral insufficiency could prolong a clean exit for the owner if a portion must be as a deferred sale or other form of gradual payment:this could increase risk to seller

4.2.3 Techniques

  • MBO
  • LMO

4.3 Exit channel: Third party

4.3.1 Advantages

  • Among private channels, usually provide the most cash upfront
  • Among private channels, usually results in the highest valuations
  • Permits capturing additional value attached by buyers seeking strategic or synergic benefits
  • Most likely to accommodate owner’s ‘soft issues such as personal time and involvement after sale

4.3.2 Disadvantages

  • For an owner who wants to stay on after the sale, the relationship may prove awkward
  • Can entail risk for the seller if the buyer wants part of the sale price to comprise an owner ‘earn-out’ structure
  • Can take time often 9-12 months
  • Can involve operational risk if confidentiality during negotiation is not properly managed

4.3.3 Techniques

  • Negotiated sale
  • Controlled auction
  • Unsolicited offer

4.4 Exit channel: Refinance/Recapitalise

4.4.1 Advantages

  • Combines owner involvement while allowing owner some diversification benefit and cash out
  • Minimal disruption from an ownership transfer viewpoint

4.4.2 Disadvantages

  • If leverage is used to create liquidity for owner, this may increase risk to company and other shareholders
  • If leverage is used to create liquidity for owner, this may not address the owner’s diversification objective if a personal guarantee from owner is required
  • If leverage is created from new equity injections, the owner will have new business partners who could present cultural or style differences

4.4.3 Techniques

  • Sell minority stake
  • Sell majority stake
  • Refinance with debt

4.5 Exit channel: Going public

4.5.1 Advantages

  • Can provide a significant amount of additional capital
  • Can create liquidity for the owner with greater flexibility in timing his exit and that of other shareholders
  • Additional liquidity can provide better incentives in attracting high-quality managers
  • Valuation multiples are generally higher for the stock of publicly traded companies than for similar privately held companies
  • Facilitates using the company’s publicly traded stock as ‘currency’ for a programme of subsequent acquisitions

4.5.2 Disadvantages

  • The preconditions for a successful IPO are daunting and often beyond the reach of many private companies
  • Going public entails dilution of ownership, the merits of which depend on pricing relative to value
  • Much information that could be considered proprietary must be reported to the public
  • Owners and managers are subject to greater legal liability in connection with shareholder lawsuits
  • Going public can be costly with a typical front-end cost of as high as 10 percent of the offering proceeds, not counting management time and business disruption in preparing for the IPO
  • Companies worth less than US$1bn that go public seldom achieve the size of float that provides the benefits to justify the significant front-end and recurring costs of public ownership

4.5.3 Techniques

  • IPO
  • Reverse merger
  • DPO

4.6 Exit channel: Liquidate

4.6.1 Advantages

  • Can be done quickly and without much complication
  • Scalable in that parts of the company can be liquidated allowing the owner to retain other parts as desired

4.6.2 Disadvantages

  • Often results in the lowest value realization because prices will not take into account customer relationships, management and employee know-how, name of reputation and so on
  • Cost is often comparable to that of selling a company, with the latter most likely to yield the higher price
  • Jobs –both managerial and other categories- are extinguished with resulting unemployment

4.6.3 Techniques

  • Selective liquidation
  • Orderly liquidation
  • Fire(forced) sale

4.7 Implementing exit strategies

Exit strategies can be implemented through a variety of tools. Some of the more familiar ones include:

  • Share retention agreements;
  • Language to prohibit transfer restriction on shares;
  • Language to prohibit limitations on dividends;
  • Tag-along arrangements(where if one shareholder finds a buyer, other shareholders have the right but not the obligation to offer shares on a proportional basis to the buyer);
  • Piggy-back arrangement(where shareholders have the right but not the obligation to register their shares for sale with the relevant securities exchange authorities, to be sold with another offering, such as an IPO);
  • Putable stock(which entails the right of a shareholder to be compensated by either the majority shareholder or the company for failure to preserve net worth in accordance with pre-agreed levels);
  • Various types of puts and calls;
  • Quasi-equity with embedded options.

written by Kwon, Hong Kyung and Um Ju Sung on 08:00 p.m, Aug 6, 2009

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