Private Equity 2024 Comparisons

Singapore is a key hub for fund managers and investment entities and continues to serve as an entry point for regional South-East Asian private equity and investment activity.

South-East Asia remains a rich hunting ground as high-growth companies in the region start to mature. Many South-East Asian businesses have restructured to include Singapore-incorporated holding entities and raised capital through these, which has continued to help drive deal flow in Singapore for PE/M&A activity.

Capital markets and treasury conditions remain challenging however, and this has contributed to a marked increase in private credit funds and investment/acquisition transactions structured with private credit components. The challenging capital market environment has also played a part in increasing South-East Asia PE secondary activity.

Special purpose acquisition companies (SPACs) also contributed to deal activity in the region, as South-East Asian unicorns prepare for a capital markets exit, though this is expected to slow down in line with the decline in global SPAC listings in the last couple of years.

Owing to global geopolitical and macroeconomic developments such as still high interest rates, sanctions, war, inflationary pressures and challenging capital market and treasury conditions, the subdued M&A deal activity witnessed in 2023 has extended into 2024 thus far, at least in comparison to the buoyancy seen in prior years where deal activity reached record-breaking levels.

Singapore’s state investor, Temasek, stated in 2021 that it expected to increasingly shape its portfolio in line with four structural trends: digitisation, sustainable living, future of consumption and longer lifespans. This continues to be an accurate description of the trends in investment and M&A activity in 2024. Sectors that continue to see healthy deal interest broadly fall into the above-mentioned categories: digitalisation, technology, data and cybersecurity, renewable energy, energy transition activities, education and healthcare. Given the emergence of commercialised artificial intelligence (AI) in particular, deal flow and private equity interest in AI software companies and data centres have also seen more activity.

The following changes to the law, practice and regulations in recent years have either already had an impact on the private equity community and private equity transactions or may do so in the future.

Significant Investments Review Act 2024

The Significant Investments Review Act came into force on 28 March 2024 and applies to both local and foreign investors. The Act sets out a new investment management regime, which seeks to strengthen the resilience of Singapore’s economy and enhance Singapore’s national security by ensuring the continuity of critical entities. Entities that are critical to the security interests of Singapore, but which are not caught by existing sector-specific legislation, may be designated under the Act (“Designated Entities”). The entities must be incorporated, formed, or established in Singapore; carry out activities in Singapore; or provide good and services to persons in Singapore.

The inaugural list of Designated Entities was published on 31 May 2024, and includes nine entities which are key providers involved in the petrochemicals industry, manufacturing of defence equipment and security solutions, marine and shipbuilding services, and digital services. Designated Entities are subject to, among other things:

• the requirement to notify or seek approval for certain specified changes in ownership and control;
• the requirement to seek approval for appointment of key officers; and
• restrictions on voluntarily winding up, dissolution or termination.

It should be noted that even if an entity has not been designated, the Minister can review ownership or control transactions involving an entity that has acted against Singapore’s national security interests. While the term “national security” is not defined, the inaugural list of Designated Entities provides insight as to the type of functions that are deemed critical to national security.

Good Governance

On 28 February 2024, following on from the conclusion of the consultations on the recommendations made by Singapore’s Sustainability Reporting Advisory Committee, the Accounting and Corporate Regulatory Authority (ACRA) and SGX RegCo (the body that undertakes frontline regulatory functions for the Singapore stock exchange) published a response containing a finalised climate reporting and assurance implementation roadmap. The roadmap highlighted that the proposed mandatory climate-related disclosure requirements will apply to:

• issuers listed on the SGX from financial year 2025 onward; and
• large, non-listed companies limited by shares with an annual revenue of at least SGD1 billion and total assets of at least SGD500 million (unless exempted) from financial year 2027.

Further, ACRA and SGX RegCo also stated in their response that a review will be conducted around 2027 to consider whether the mandatory climate reporting should be expanded to other non-listed companies by around financial year 2030.

Singapore’s laws and regulations are in line with those of other major financial centres and private equity investors should be able to navigate them with ease. Singapore is an investor-friendly jurisdiction and consistently ranks as one of the world’s most competitive economies according to the World Economic Forum.

There are no general foreign shareholding restrictions in Singapore, apart from in a few tightly regulated industries such as banking, broadcasting and newspaper publishing. Neither does Singapore have a general national security or national interests regime with regard to foreign investment and acquisitions. Notwithstanding the foregoing, the Significant Investments Review Act introduces new layers of regulatory oversight applicable to both foreign and domestic investments, and this should be factored into transaction planning and execution. See 2.1 Impact of Legal Developments on Funds and Transactions for further detail.

Change of control or shareholding in some target companies may be subject to conditions in their licences (if they are licensed entities) and/or to antitrust regulations, but these are generally in line with antitrust principles that would be familiar to international private equity investors.

Key Regulators Relevant to Private Equity Transactions and the Private Equity Community

Monetary Authority of Singapore

Fund management is a regulated activity under the Monetary Authority of Singapore Act, for which a Capital Markets Services (CMS) licence is required – unless one of the available licensing exemptions applies. Typically, the manager of the funds in Singapore must either be a Registered Fund Management Company (RFMC) or hold a CMS licence.

Singapore Exchange and Securities Industry Council

Public-to-private transactions need to comply with the regime under the Singapore Code on Takeovers and Mergers (the “Takeover Code”), which is administered by the Securities Industry Council (SIC), and voluntary delistings under the SGX Listing Rules.

Competition and Consumer Commission of Singapore (CCCS)

The Competition and Consumer Commission of Singapore (CCCS) is the regulator for competition law and regulations.

Relevant Laws/Regulations

Private equity players will often encounter the following legislative provisions in the course of their business compliance or in transactions:

• the Securities and Futures Act (SFA);
• the Takeover Code;
• the SGX Listing Rules – these apply to all companies listed on the SGX (whether Mainboard or the secondary “Catalist board”) and require controlling shareholders to notify listed companies of:
1. any share-pledging arrangements; and
2. any event that may result in a breach of loan covenants entered into by the listed company, which may impact acquisition financing terms for buyouts;
• the Competition Act – generally, anti-competitive agreements or any M&A that substantially lessen competition are prohibited under the Competition Act and require clearance/consent from the CCCS;
• the Companies Act – this is applicable to all incorporated companies in Singapore; 
• the Employment Act – this applies where the transfer of employees is involved or where it is necessary to enter into employment agreements with key employees; and
• sector-specific legislation the target may be subject to.

Typically, detailed due diligence is carried out by private equity bidders covering the usual areas, such as commercial, financial, tax, legal, insurance, compliance and environment. Materiality and scope depend on the private equity investor’s risk assessment and financing requirements, the complexity of the target’s business, and the timeframe for the particular acquisition.

Legal due diligence usually covers the following areas:

• corporate information and records;
• regulatory approvals;
• licences or permits;
• material contracts;
• any change of control or change in shareholding restrictions;
• information relating to assets (including title to real estate), IP rights and IT;
• employee and labour law matters;
• litigation that the target is involved in (including customary litigation and court searches);
• charges and encumbrances registered against the target’s assets; and
• ESG, responsible investing and compliance matters, such as environmental laws, data protection and anti-bribery and corruption (although these will typically be conducted with the help of specialist advisers).

Vendor due diligence (VDD) and reliance on VDD reports is not as common in Singapore as it is in other jurisdictions (eg, the UK and Europe), but there has been a growing trend towards this in recent years – especially for competitive auction deals run by private equity sellers (who tend to run better-organised sale processes than less sophisticated sellers).

Given that VDD is not an established common practice for M&A deals generally, there is also less familiarity with and less acceptance of VDD reports. Bidders typically still conduct fairly extensive due diligence, even where a VDD report is available.

Where there is VDD, the starting position is usually for the VDD reports to be provided on a non-reliance basis to bidders, although there is a gradual increase in transactions where the successful bidder/buyer will be granted reliance.

Acquisition structures are usually determined by the nature of the target and its assets rather than the identity of the buyer (whether private equity or otherwise).

Private/Unlisted Companies

For the acquisition of private/unlisted companies, such acquisitions will be by way of private treaty sale and purchase agreement (whether through bilateral negotiations or through an auction process). Generally speaking, share acquisitions are more common than asset acquisitions.

Public/Listed Targets

For public/listed targets, acquisitions (assuming control deals) will either be by way of general offers (voluntary being more common than mandatory) or court-approved schemes of arrangement. As private equity transactions are often leveraged, the “all-or-nothing” nature of schemes of arrangement lends itself better to debt “pushdown” and is often favoured where there is reasonable confidence that the necessary approval thresholds can be met.

It is common for the fund making the acquisition to set up a holding company that, in turn, holds a special-purpose vehicle as the buyer entity (Bidco). Representatives of the fund shareholder will be appointed to the board of the Bidco, but it is the Bidco that contracts with the seller. The fund itself will not usually be involved in or party to any contractual documentation (other than perhaps an equity commitment letter).

Financing

Private equity deals in Singapore are normally financed by traditional bank financing and banks are generally willing to support leveraged finance transactions where the track record of the sponsor and the quality of the target assets are not an issue. For leveraged buyout structures, Singapore abolished the concept of financial assistance for private companies (which facilitates debt pushdown) in 2015, but financial assistance prohibitions (with exemptions) continue to apply to public companies and their subsidiaries.

For public takeovers and mergers, it is generally not permitted for business combinations to be conditional on the bidder obtaining financing.

Commitment Letter

For acquisitions of private/unlisted targets, equity commitment letters are common, although satisfactory evidence of debt financing will also often be expected in competitive processes. A financing condition is subject to negotiations between the buyer and seller, although not typically included in transaction documentation.

For acquisitions of public/listed targets that are governed by the Takeover Code, the firm intention to undertake an offer requires an unconditional confirmation by the offeror’s financial adviser (or by another appropriate third party) that the offeror has sufficient resources available to satisfy full acceptance of the offer. Accordingly, the financial adviser to the offeror will need to conduct due diligence; and review and be satisfied with the sources of financing. An equity commitment letter may not suffice, as these increasingly need to be supplemented by debt financing documents that are capable of being drawn on if necessary.

Stakes

Private equity deals see a good mix of control deals versus minority investments. Traditionally, private equity deals have seen private equity funds taking a majority or control stake but there is now also a trend towards significant minority investment deals. Early round venture capital investments (including by private equity funds) have also increased in pace and volume.

These minority/partnership investments in buyout transactions could be a reflection of the Asian private equity market, where intrinsic value is tied to the operational know-how and relationships of family owners and family-linked conglomerates, even though there is a desire for professional managers to take the businesses forward.

Consortium Arrangements

Private equity deals (especially the higher-value ones) are frequently entered into by a consortium, comprising private equity sponsors but also other investors investing alongside them.

Broadly speaking, it is more common to see existing controlling shareholders/management as co-investors in these consortiums than other limited partners or private equity sponsors as direct investors (rather than through private stakes). However, there are notable high-value exceptions, such as the acquisition and privatisation of Global Logistic Properties Limited in 2017 by Nesta Investment Holdings Limited (which is controlled by a consortium comprising various investors, including HOPU Logistics Investment Management Co Ltd, Hillhouse Capital Logistics Management Ltd, Bank of China Group Investment Limited, and Vanke Real Estate (Hong Kong) Company Limited) by way of a scheme of arrangement in what was Asia’s largest-ever private equity buyout.

Transaction Terms: Private Acquisitions

Consideration structures which entail post-completion audits and consequential purchase-price adjustments are more common in the sale of private companies than locked-box mechanisms, although private equity sellers would usually prefer and insist on the latter.

Earn-outs are not typically used where the buyer and the seller want a clean break after the acquisition is complete. A private equity fund looking to divest a portfolio entity at the tail-end of its fund cycle, for example, will not be inclined to accept earn-out as a form of deferred payment. Conversely, where private equity investors are buyers, earn-outs to incentivise management sellers would be common.

Generally speaking, private equity buyers are less likely to provide protection for consideration (whether in the form of a guarantee or enforceable commitments) than a corporate buyer would.

Interest on leakage for locked-box consideration remains a negotiated point in most deals and there is no established norm, especially because locked-box mechanisms are not that widespread in the first place. However, in most cases it is unlikely that interest would be charged.

In locked-box and completion accounts adjustments, it is fairly common for sale and purchase agreements to provide for resolution of disputes via expert determination by an independent accountant, rather than resort to a dispute resolution mechanism.

Conditionality of deals is usually a heavily negotiated area and there is no “standard” norm.

Private equity sellers will usually insist on certainty of transaction and will not agree to conditions other than those that are absolutely necessary or mandatory/regulatory.

Financing conditions are generally resisted and are relatively rare, whereas limited material adverse change clauses are usually agreed to.

“Hell or high water” undertakings are not common in Singapore and private equity backed buyers will resist this very strongly.

Break fee arrangements are permitted but uncommon. Reverse break fees are even more rare in Singapore.

For private M&A transactions, parties should be mindful that a proposed break fee may constitute a penalty, and consequently not be enforceable if it does not represent a genuine estimate of the loss suffered by the innocent party.

For public deals, there are restrictions and prescribed requirements to be met in the Takeover Code for a listed target to agree to any break fees and certain safeguards must be observed. Such safeguards assume that a break fee must be nominal, normally not more than 1% of the value of the target calculated by reference to the offer price. The directors of the target company (both public and private) must also consider their fiduciary duties in agreeing to such break fees, as well as the possible breach of any financial assistance prohibition under the Companies Act. For a public transaction, the target board and its financial adviser would also be required to provide written confirmations to the SIC, including that (i) the break fee arrangements were agreed as a result of normal commercial negotiations and (ii) they each believe the break fee to be in the best interests of the offeree company shareholders. The break fee arrangement must be fully disclosed in the officer announcement and the offer document, and the SIC should be consulted at the earliest opportunity where a break fee or similar arrangements are proposed.

While it is generally open to bidders to propose deal security measures (such as break fees), where the Takeover Code applies, the target company should note its duty under the Takeover Code to not undertake any deal security measures that could frustrate a bona fide offer or deny its shareholders an opportunity to decide on that offer’s merits.

Private equity buyers and sellers are usually extremely focused on deal certainty and termination rights are typically heavily resisted. 

Sale and purchase agreements typically contain a longstop date by which the closing conditions must be fulfilled, failing which the agreement will terminate. However, as mentioned previously, the conditions and necessity of said agreement will usually be heavily negotiated and any attempt at a “back-door” termination will generally be viewed with suspicion. Longstop dates are typically between three to six months from signing date.

The right to terminate for breach of pre-closing undertakings or representations/warranties will usually be resisted and at the very least pegged to some material thresholds.

It should be noted that the termination of the purchase agreement is subject to the SIC’s approval in a going-private transaction subject to the Takeover Code, even when the condition giving rise to the termination right has been triggered.

Parties are generally free to negotiate the representations, warranties and indemnities. The scope of these varies widely from transaction to transaction and will depend on the relative bargaining power of the parties. Private equity sellers will want to minimise their continuing/residual liability on the sale of a portfolio company and, generally, the risks they are prepared to accept (whether in the form of warranties or indemnities or covenants) will be lower compared to corporate sellers.

See also 6.9 Warranty and Indemnity Protection and 6.10 Other Protections in Acquisition Documentation.

Warranties

A private equity seller will usually give fundamental warranties pertaining to title, capacity and authority, but willingness to provide extensive business warranties will depend on the extent of participation and the involvement of management. Where management holds a significant stake, they are expected to give comprehensive warranties to the buyer, together with a management representation made to the private equity sellers. Where the management stake is not significant, the private equity sellers may be prepared to increase the scope of the warranties, subject to limited liability caps of between 10% to 30% of the consideration. See also 6.8 Allocation of Risk.

Limits on Liability

Customary limitations on a seller’s liability under a sale and purchase agreement include:

• for fundamental warranties – capped at an amount equal to or less than the purchase price;
• for other warranties, typical caps between 10% to 30% of the consideration;
• a de minimis threshold (normally about 0.1% of the purchase price for each individual claim and 0.5% to 1% of the purchase price for the aggregate value of such claims);
• a limitation period of 18–36 months for non-tax claims and between three to six years for fundamental warranty and tax claims; and
• qualifying representations and warranties with disclosure contained in the disclosure letter and all information in the data room.

Warranty and Indemnity Insurance

The use of warranty and indemnity (W&I) insurance to mitigate deal risk for private equity firms has gained traction in recent years and is now widely accepted (in fact, it is a prerequisite for most private equity parties). On the sell-side, it bridges the gap on the extent of warranties coverage and liability caps; on the buy-side, it enhances the attractiveness of the private equity investor’s bid in competitive bid situations. Seller-initiated, limited or no recourse W&I insurance appears to be becoming increasingly popular, as more private equity sellers seek clean exits by requiring buyers to take out buy-side insurance as stapled deals (commonly known as the sell-buy flip).

Target Company Management’s Involvement

A private equity sponsor will also typically look to greater commitment and support for the transaction from the management of the target company to ensure management continuity. As such, it is not uncommon to find private equity sponsors insisting that the terms of the transaction give them the right to negotiate with the existing management of the target company or offer them the opportunity to participate with an equity stake in the bidding vehicle or enter into new service agreements. See 8. Management Incentives for more on typical management participation terms.

Escrows and Security

Where known risks are identified, an escrow account may be set aside from the consideration to satisfy such claims and to secure any indemnity obligations; however, it is extremely rare for any private equity seller to agree to provide any such escrow or security.

There do not appear to have been many litigation suits in connection with private equity M&A deals in Singapore.

Take-privates are common in Singapore. As companies listed on the SGX often trade at a discount to their book values, delistings have outnumbered listings on the SGX for the past five years. 

Many of these take-privates are backed by private equity investors (often as part of a consortium with existing controlling shareholders).

However, due to changes in the voluntary delisting regime and compulsory acquisition provisions, it is expected that privatisations will become increasingly difficult to structure. It is therefore also expected that the pace will slow somewhat.

For listed entities, a substantial shareholder (5% or more) needs to give notice to the listed corporation within two business days of:

• their interest;
• any change in the percentage level of their interest; or       
• when they cease to be a substantial shareholder.

The issuer is then required to make the corresponding disclosures via SGX announcements. Substantial shareholders include persons who have the authority to dispose of – or exercise control over the disposal of – the relevant securities, and deemed interests are included in such securities. It should be noted that fund managers and their controllers would have to disclose their interests under this regime.

Under Rule 14.1 of the Takeover Code, the thresholds for triggering a mandatory general offer are as follows:

• where any person acquires, whether by a series of transactions over a period of time or not, shares that (added together with shares held or acquired by persons acting in concert with them) carry 30% or more of the voting rights of a company; or
• any person who, together with persons acting in concert with them, holds not less than 30% but not more than 50% of the voting rights and such person, or any person acting in concert with them, acquires additional shares within any six-month period that carry more than 1% of the voting rights.

Persons who trigger the thresholds must extend offers immediately to the holders of any class of share capital of the company that carries votes and in which such person, or persons acting in concert with them, hold shares. Each of the principal members of the group of persons acting in concert with such person may, according to the circumstances of the case, have an obligation to extend the offer as well.

For voluntary and partial offers, the offeror can offer cash or securities (or a combination of the two) as consideration for the shares of the target, except for in certain limited instances under the Takeover Code where a cash or securities offer is required.

For mandatory offers, the offeror must offer cash or a cash alternative for the shares of the target.

The ability to introduce offer conditions is limited by Takeover Code restrictions.

Mandatory Offer

In the case of a mandatory offer, the only condition that can be imposed – apart from merger control clearance by the CCCS – is on the minimum level of acceptance.

Voluntary or Partial Offer

In the case of a voluntary or partial offer, conditions cannot be attached where their fulfilment depends on the subjective interpretation or judgement of the bidder. If this lies in the bidder’s hands, the SIC should be consulted on the conditions to be attached. Even where a condition is permitted, SIC consent is required to revoke a general offer that has been announced in case of non-fulfilment of conditions. 

Cash Offer

Financing conditions would not generally be permitted. Where the offer is for cash or includes an element of cash, the bidder must have sufficient financial resources unconditionally available to allow it to satisfy full acceptance of the offer before it can announce the offer. The SIC requires the financial adviser to the bidder or any other appropriate third party to confirm this unconditionally.

Exclusivity Clauses

Deal protections could include “no-shop” or exclusivity clauses.

Break Fees

The provision of a break fee could be included subject to Takeover Code restrictions. This break fee will be payable should certain specified events occur, such as:

• a superior competing offer becoming or being declared unconditional with regard to acceptance within a specified time; or
• the board of the target public company recommending to the shareholders that they should accept a superior competing offer.

Under Section 215(1) of the Companies Act 1967 of Singapore, an acquirer can exercise the right of compulsory acquisition to buy out the remaining shareholders of a listed company if it receives acceptances pursuant to the general offer in respect of not less than 90% of the listed company’s shares.

On 1 July 2023, the criteria for computing the 90% threshold requirement were revised to expand the scope of shareholders whose shares will be excluded from the computation. The scope of exclusion now covers any shares held as treasury shares and those shares already held at the date of the offer by the following:

a) the offeror (or the offeror’s related corporations);

b) a nominee of the offeror (or its related corporations);

c) a person who is accustomed or is under an obligation whether formal or informal to act in accordance with the directions, instructions or wishes of the offeror in respect of the target company;

d) the offeror’s spouse, parent, brother, sister, son, adopted son, stepson, daughter, adopted daughter or stepdaughter;

e) a person whose directions, instructions or wishes the offeror is accustomed or is under an obligation whether formal or informal to act in accordance with, in respect of the target company; or

f) a body corporate that is “controlled” by the offeror or a person mentioned in points c), d) or e) above (“Excluded Persons”).

A body corporate is “controlled” by the offeror or Excluded Persons if:

• the offeror or Excluded Persons is/are entitled to exercise or control the exercise of not less than 50% of the voting power in the body corporate or such percentage of the voting power in the body corporate as may be prescribed, whichever is lower; or
• the body corporate is, or a majority of its directors are, accustomed or under an obligation, whether formal or informal, to act in accordance with the directions, instructions or wishes of the offeror or Excluded Persons.

Acquisitions of the listed company’s shares outside the general offer may be counted towards the 90% squeeze-out threshold, provided that:

• these acquisitions are made during the period when the general offer is open for acceptances, up to the close of the general offer;
• the acquisition price does not exceed the offer price; or
• the offer price is revised to match or exceed the acquisition price.

If a bidder fails to achieve the squeeze-out thresholds, its ability to seek additional governance rights will depend on whether it can at least achieve delisting of the target. Otherwise, listing rules may be restrictive in respect of additional governance rules. In the context of a public takeover offer, no additional rights are granted to a shareholder by reason of a significant shareholding. Debt push-down will also be more difficult as long as the target remains a public company (ie, one with more than 50 shareholders) as there are legislative provisions which prohibit a target from providing financial assistance (direct or indirect) in the acquisition of its own shares (whether pre or post-acquisition). A special resolution (75%) will, inter alia, be required from shareholders to approve such financial assistance. 

It is common for a bidder to seek irrevocable undertakings from key shareholders to accept its proposed offer (or to vote favourably) and thereby increase the likelihood of the offer (or scheme) being successful.

Similarly, where shareholders’ approval for the sale is required, the private equity buyer may seek irrevocable undertakings from certain existing shareholders to vote favourably.

The undertakings can either be “soft” (which allows an out to the undertaking shareholder if a better offer is made) or “hard” (which does not allow any such out). Where the offer terms are favourable, “hard” undertakings have become increasingly common.

Given the highly confidential and price-sensitive nature of such transactions, any approach for irrevocable undertakings will need to be handled with sensitivity and the timing carefully judged (with appropriate non-disclosure agreements and wall-crossing measures in place).

Alignment of management interests with the private equity investor’s financial objectives is a key consideration and, therefore, equity incentives are a common feature of private equity transactions.

The form of management participation varies and could either be ordinary or preferred.

Equity securities may be subject to ratchets measured by key performance indicators. These would usually be subject to restrictions on transfer and claw-back mechanisms, or only exercisable on exit.

For take-private transactions, subject to clearance with the SIC on any “special deals” issues under the Takeover Code, management may be offered the opportunity to participate (with an equity stake) in the bidding vehicle or its holding company, where management agree to swap their shares for equity in the bidding vehicle. As shareholders in the bidding vehicle, the management is likely to be subject to the usual restrictions that a private equity sponsor would expect to impose in terms of voting rights and transferability of shares.

Management equity is commonly subject to good leaver and bad leaver provisions. Vesting periods, as well as any moratorium or restrictions, would usually be for at least a period that coincides with the time anticipated for management to achieve an exit for the private equity sponsor, usually within three to five years.

Management shareholders generally agree to non-compete and non-solicitation undertakings.

Such undertakings will need to be “reasonable”. Restrictive covenants such as non-competition and non-solicitation clauses are generally not enforceable under Singapore law unless and until they are proven to be:

• reasonably required to protect a legitimate proprietary interest of the party seeking to enforce such a covenant;
• reasonable in respect of the interests of the parties concerned; and
• reasonable with regard to the interests of the public.

Management may have pre-emption rights to subscribe for fresh equity on the same terms but typically would not have evergreen anti-dilution rights.

The reserved matters list will also usually be kept short and restricted, and the ability of the management team to control or influence the exit of the private equity sponsor will normally be limited.

Oversight by the private equity fund is usually achieved through a combination of board appointments, veto rights and information rights. Private equity investors typically enjoy veto rights over material corporate actions, including restrictions on further issuances of debt/equity, change of business, winding-up and other related party transactions. Depending on the size of the minority stake, the private equity investor may also have veto rights over operational matters such as capital and/or operational expenditures above a certain threshold, and material acquisitions and disposals.

Directors of the portfolio company appointed by the private equity investor may disclose information received by such directors if such disclosure is:

• not likely to prejudice the portfolio company; and
• made with the authorisation of the portfolio company’s board of directors, with regard to all, any class of, or specific information.

As a fundamental principle of company law, a company is a separate legal entity from its shareholders and its shareholders are not liable for the company’s actions. The Singapore courts would not generally pierce the corporate veil. Accordingly, it is unlikely that a private equity investor will be liable for the liabilities of underlying portfolio companies, except in very unusual circumstances.

Most exits in recent years have been through trade sales rather than through public offerings.

Holding periods seem to be on the rise and average about five to six years or even more.

Dual-tracked exit processes are only undertaken when private equity sellers are truly unsure which option is more likely to be consummated; however, they are usually keen to end the dual track as soon as possible.

Drag Rights

Drag rights are common in the event of an exit by the private equity investor, but it is less common for the drag to actually be enforced, since interests are usually aligned, and most exits are done on a consensual basis.

Drag thresholds vary but will typically be 50% or more. In transactions where there is a significant minority or institutional co-investor, it could be that a hurdle needs to be achieved before the drag can be activated.

Tag Rights

Tag rights in favour of management and co-investors are not uncommon, but they depend on the bargaining powers of the management shareholders. Institutional co-investors would typically expect a quid pro quo tag right for drag rights. 

Lock-Up

Moratorium requirements are set out under the SGX Listing Rules for the Mainboard and Catalist respectively.

For the Mainboard

For promoters (which include persons holding 15% or more of the total voting rights in the issuer and their associates, and executive directors with an interest in 5% or more of the issued share capital of the issuer, excluding subsidiary holdings, at the time of listing), the moratorium:

• is for the entire shareholding for at least six months after listing; and
• if the issuer is relying on certain admission criteria, the promoters’ shareholding will be subject thereafter to a further lock-up of no less than 50% of the original shareholding (adjusted for bonus issue, subdivision or consolidation) for an additional six months thereafter.

Where a promoter has an indirect shareholding in the issuer, the promoter must also provide an undertaking to maintain the promoter’s effective interest in the securities under moratorium during the moratorium period. However, where an indirect shareholding is held through a company which is listed, the promoter’s holding in that listed company is excluded from the moratorium.

For investors with 5% or more of post-invitation share capital who acquired and paid for their shares less than 12 months prior to the date of the listing application, their shares will be subject to a six-month lock-up to be given over the proportion of shares representing the profit portion of the shares.

For investors each with less than 5% of the issuer’s post-invitation issued share capital who acquired and paid for their shares less than 12 months prior to the date of the listing application, there is no limit on the number of shares that may be sold as vendor shares at the time of the IPO. But if the investor has shares that remain unsold at the time of the IPO, the remaining shares will also be subject to a six-month lock-up to be given over the proportion of shares representing the profit portion of the shares.

For investors who are connected to the issue manager for the IPO of the issuer’s securities, their shareholdings will be subject to a moratorium of six months after listing. For the avoidance of doubt, these investors are prohibited from selling vendor shares at the time of the IPO. The aforesaid moratorium and prohibition will not apply to investors that are fund managers where:

• the funds invested in the issuer are managed on behalf of independent third parties;
• the investor and the issue manager have separate and independent management teams and decision-making structures; and
• proper policies and procedures have been implemented to address any conflicts of interest arising between the issue manager and the investor,

subject to the issuer consulting with, and demonstrating to, the SGX that these conditions have been met, to the satisfaction of the SGX.

The SGX retains the discretion to require compliance with the aforesaid moratorium and prohibition where it deems fit.

For Catalist

The Catalist Listing Rules set out moratorium requirements in respect of promoters, investors who acquired and paid for their securities less than 12 months prior to listing, as well as any investors who are connected to the sponsor of the IPO. They are broadly similar to the Mainboard requirements – except that:

• in the case of promoters’ shareholdings, at least 50% of the original shareholding (adjusted for any bonus issue, subdivision or consolidation) is required to be subject to a lock-up of six months following the expiry of the initial six-month period after listing where their entire shareholding is locked up; and
• in the case of investors who acquired and paid for their securities less than 12 months prior to listing, they are subject to a 12-month lock-up to be given over the proportion of shares representing the profit portion of the shares.

Post-IPO relationship agreements are not entered into between a private equity seller and the target company.