Private Equity 2023 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.

India and South-East Asia remain rich hunting grounds as high-growth companies in the region start to mature. Many South-East Asian and Indian-based 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.

Given the challenging recent capital market and treasury conditions, there has been a marked increase in private credit funds and investment/acquisition transactions structured with private credit components. Special purpose acquisition companies (SPACs) also contributed to deal activity in the region, as South-East Asian unicorns prepare for a capital markets exit.

Owing to global geopolitical and macroeconomic developments – such as rising interest rates, sanctions, war, inflationary pressures and difficult capital market and treasury conditions – M&A deal activity has been subdued in 2023 compared to the buoyancy of recent years, which saw record-breaking levels of deal activity.

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 2023. Sectors that continue to see healthy deal interest broadly fall into the above-mentioned categories: digitalisation, technology, data and cybersecurity, renewable energy, transition activities, alternative food sources and healthcare. Perhaps somewhat paradoxically, given the emphasis on the digital and data economy, deal flow and private equity interest in the real estate sector have also remained relatively healthy.

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

Singapore Exchange SPAC Framework

With effect from 3 September 2021, SPACs are allowed to list on the “Mainboard” of the SGX‒ST by way of a primary listing, providing companies with an attractive alternative capital fund raising route.

As well as satisfying existing admission criteria for a primary listing on the Mainboard, an SGX–ST SPAC is subject to additional admission criteria under the new listing framework, such as:

• minimum market capitalisation;
• public float; and
• minimum issue price.

Further suitability assessment factors include:

• profile of founding shareholders;
• experience and expertise of management team;
• nature and extent of management team compensation;
• SPAC business objective and strategy;
• extent and type of securities participation; and
• alignment of interests.

Changes to Delisting Rules

Public-to-privates have been common in private equity transactions in Singapore in recent years (see 7. Takeovers).

However, a combination of legislative and regulatory changes has, at the same time, resulted in restrictions of structuring flexibility in take-private deals, and deal volume involving private equity sponsors acting with existing controlling shareholders to privatise companies listed on the SGX is expected to fall.

Changes were introduced to the SGX Listing Rules in July 2019 to strengthen the protection of minority investors in a public/delisting buyout. A voluntary delisting now needs to be approved by a majority of at least 75% of the shares held by shareholders of the issuer present and voting. In order to enhance minority shareholder protection, the offeror and its concert parties are now required to abstain from voting on the delisting resolution.

The revised SGX Listing Rules also now require the exit offer to be “fair” in the opinion of an independent financial adviser (in addition to being “reasonable”) and to include a cash offer as the default alternative. Although exceptions to these requirements apply if the delisting is pursuant to an offer under the Singapore Code on Takeovers and Mergers (the “Takeover Code”), provided that the offeror is exercising its right of compulsory acquisition, the Companies Act provisions on compulsory acquisition have also been tightened making it more difficult to achieve relevant thresholds for “squeeze-out” and privatisation.

Variable Capital Companies

A new structure for investment funds was introduced on 14 January 2020: the Variable Capital Company (VCC). The VCC corporate structure can be used for a wide range of investment funds and gives fund managers enhanced operational flexibility and cost savings.

The introduction of the VCC as a new corporate vehicle dedicated to investment funds is intended to change Singapore’s fund management landscape and more fund managers are expected to establish or re-domicile funds in Singapore as VCCs. The VCC is subject to less stringent capital maintenance rules and may pay dividends out of capital, unlike a traditional Singapore company. It can be used for both open-end and closed-end funds and as a standalone fund or umbrella entity with multiple sub-funds, each with segregated assets and liabilities. The VCC provides greater operational flexibility and is entitled to the same tax benefits that existing Singapore funds enjoy.

Dual Class Shares

In mid-2018, the SGX implemented a regulatory framework for the listing of companies with dual class shares structures, allowing for entities with different classes of voting rights (subject to appropriate safeguards including against entrenchment and expropriation) to raise funds through an IPO on the SGX.

VIMA Documents

The Singapore Venture Capital & Private Equity Association and the Singapore Academy of Law has published a set of Venture Capital Investment Model Agreements (VIMAs), comprising standardised documentation for use in seed rounds and early-stage financings. VIMAs currently include a Series A term sheet and subscription agreement, a shareholders’ agreement and a convertible agreement regarding equity. This is not so much a legal development as a development in practice.

The initial set of VIMA documents is in the process of being updated and refined, with the roll-out of VIMA 2.0 being anticipated soon.

Good Governance

Reflecting global trends, Singapore’s regulators have implemented or clarified increased expectations with regard to ESG concerns. The SGX has announced enhanced disclosures and reporting requirements aimed at nudging listed issuers in the direction of integrating ESG factors into their corporate governance practices and business strategy. Mandatory climate-related disclosures consistent with recommendations of the Task Force on Climate-Related Financial Disclosures will be required under a “phased approach”.

Increased Regulation in Digital Payments Space

With the increased focus on cryptocurrencies, the Monetary Authority of Singapore (MAS) – as Singapore’s central banker and financial regulatory authority – has issued various guidelines and regulations aimed at regulating digital payments and digital payment token services.

General Regulatory Landscape

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. 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 MAS, 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 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; and
• 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.

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.

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.

For acquisitions of public/listed targets that are governed by the Takeover Code, public confirmation of available financial resources will be required by the financial adviser at the time of announcement of the general 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.

Although not a general practice, break fees are agreed for some transactions. 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. 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 financial adviser to the target company would also be required to confirm that, inter alia, they believe the fee to be in the best interests of the offeree company shareholders.

Reverse break fees are even less common in Singapore.

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 to 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 judgment 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 (Chapter 50), 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, excluding:

• shares already held by the acquirer or its related corporations (or their respective nominees) at the date of the general offer;
• shares held or acquired:
1. (i) by a person who is accustomed to acting – or is under an obligation, whether formal or informal, to act – in accordance with the directions, instructions or wishes of the acquirer;
2. (ii) by the acquirer’s spouse, parent, brother, sister, son, adopted son, stepson, daughter, adopted daughter or stepdaughter;
3. (iii) by a person whose directions, instructions or wishes the acquirer is accustomed to acting – or is under an obligation whether, formal or informal, to act – in accordance with; or
4. (iv) by a body corporate that is controlled by the acquirer or a person mentioned in the bullets (i), (ii) or (iii) above; and
• treasury shares (90% squeeze-out threshold).

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. 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 with a shareholding of 15% or more and their associates), the moratorium:

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

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 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, shareholdings will be subject to a moratorium of six months after listing. The moratorium will not apply to fund managers where the funds invested are managed on behalf of independent third parties, with separate and independent management teams and decision-making structures and policies and procedures to address conflicts of interest.

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 sponsors. They are broadly similar to the Mainboard requirements – except that, in the case of promoters’ shareholdings, at least 50% is required to be subject to a lock-up of six months following the expiry of the initial six-month period where their entire shareholding is locked up.

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