Private equity and M&A deal flow in the US was uneven over the last 12 months, with a Q2 2025 pause tied to tariff-driven volatility, macro-economic uncertainty, and still-elevated interest rates, followed by a rebound in the second half of 2025. Alternative strategies, including carve-outs, minority investments, and consortium deals remain central as traditional buyouts have been limited by increased debt financing costs.

Market sentiment improved in 2024 and 2025 as inflation eased and the US Federal Reserve modestly cut interest rates, resulting in year-over-year increases in both deal value and deal count, with megadeals driving much of the recovery. However, global tensions have increased uncertainty and dampened small-deal M&A activity heading into 2026, while large corporate transactions remain robust. Deal activity has focused on technology, healthcare and infrastructure.

Sector Trends

Technology continues to lead US deal flow, with M&A activity in the sector rising significantly year-over-year in 2025. Investor demand has remained strong in areas such as artificial intelligence, cybersecurity and enterprise cloud platforms. Technology transactions continue to account for a substantial share of all billion-dollar deals in the US.

Energy and infrastructure followed closely, with North American electric energy M&A continuing to see strong growth driven by AI and data-centre infrastructure demand. Aerospace and defence also emerged as a major driver, with deal value increasing as sponsors pursued defence supply chain platforms. Healthcare rebounded, driven by biopharma and healthcare technology, even as healthcare services remained softer and large pharmaceutical companies continued to pursue pipeline-building acquisitions. Financial services was also strong, supported by continued consolidation, while B2B remained active but more mixed.

Macro-Economic and Geopolitical Environment

The macro-economic backdrop has continued to shift. Following several years of high interest rates and persistent inflation, financing conditions have gradually begun to ease. The US Federal Reserve has modestly cut rates, and private credit lenders have played an increasing role to fund transactions where banks remained cautious.

However, global tensions have continued to impact M&A activity in 2026. The wars in Iran and Ukraine, US–China tensions and US tariffs have contributed to heightened caution, particularly in cross-border transactions and regulated sectors. US M&A reacted sharply to the broad tariff announcements beginning in April 2025, with many private equity firms pausing or re-evaluating deals amid tariff-driven uncertainty. As of early 2026, overall deal value is rising, driven by large transactions, while smaller deal activity remains fragile. Sponsors are increasingly pricing geopolitical and policy risks into process design, deal timing and diligence scope. As tariffs have expanded, the administration has been reaching trade agreements, providing greater clarity that could support an uptick in M&A activity.

Legal and regulatory developments in the US over the past 12 to 18 months have had a measurable impact on private equity sponsors, both at the fund level and in transaction execution. While certain developments have added structural or compliance complexity, others have clarified long-standing market practices, particularly around governance and disclosure.

Antitrust Enforcement

The Federal Trade Commission (FTC) and the Department of Justice (DOJ) have adopted a more assertive enforcement posture towards private equity deal activity. Particular focus has been placed on roll-up strategies, interlocking board seats and serial acquisitions, especially in healthcare, technology and consumer markets. The agencies have signalled a willingness to litigate under a “serial monopolist” theory and to challenge cumulative effects of multiple acquisitions within a sector.

Enforcement of Section 8 of the Clayton Act, which prohibits the same individual from serving as a director or officer of competing companies under certain circumstances, has also ramped up. Sponsors are more proactively reviewing cross-portfolio board roles and common ownership structures. Revised merger guidelines and filing requirements further emphasise risks for repeat acquirers, prompting sponsors to conduct earlier antitrust diligence, prepare more robust filings and build in clear covenant structures.

The Trump administration has indicated a focus on large technology transactions. The DOJ’s legal action challenging the Juniper Networks acquisition by Hewlett Packard – ultimately cleared subject to divestitures and licensing commitments – underscores the agency’s emphasis on structural relief in technology transactions. For deal makers, this case highlights the increasing importance of early regulatory engagement, particularly in transactions involving adjacent technologies or converging markets.

The current administration is also continuing the prior administration’s pending lawsuit in the US District Court for the Southern District of New York against KKR & Co Inc (KKR), alleging KKR violated initial disclosure requirements in antitrust filings under the Hart-Scott-Rodino Antitrust Improvements Act (the “HSR Act”), with the DOJ seeking over USD650 million in civil penalties. This litigation highlights the importance of fulsome and accurate disclosures in antitrust filings, particularly by private equity firms engaged in roll-up transactions.

Foreign Investment and the Committee on Foreign Investment in the United States (CFIUS)

CFIUS review activity has increased materially, including in deals where foreign investors are indirect or passive. Transactions involving critical infrastructure, defence technologies, sensitive personal data and dual-use assets are higher risk. Even when a fund is US-based, the presence of foreign limited partners (LPs) or co-investors may trigger CFIUS review. As a result, sponsors are limiting governance rights for foreign LPs, building CFIUS-related undertakings into deal documentation, and in some cases agreeing to mitigation measures. Separately, proposed outbound investment screening rules are now in effect for certain investments involving semiconductors, quantum information technologies and AI.

Fund Governance and US Securities Exchange Commission (SEC) Oversight

The SEC’s Private Fund Adviser Rules, adopted in 2023 and initially phasing in during 2025, were scheduled to reshape private fund operations. Key requirements included quarterly fee and performance statements to LPs, mandatory fund-level audits, and specific fairness standards for general partner (GP)-led secondary transactions. However, the Fifth Circuit vacated these rules in 2024, and the SEC subsequently conformed its rule text to reflect the same. Even so, private fund advisers remain subject to examination and enforcement focus on conflicts, fees and expenses, valuation, preferential treatment, and sponsor-led liquidity transactions.

Delaware Law and Shareholder Rights

In response to the 2024 Moelis decision, which briefly invalidated common investor veto rights, the Delaware legislature enacted the Delaware General Corporation Law (DGCL), Section 122(18). This amendment provides a clear “safe harbour” for stockholder agreements that grant consent rights, provided they do not conflict with the company’s charter. Furthermore, in January 2026, the Delaware Supreme Court reversed the original Moelis ruling, holding that such agreements are voidable, not void, and that facial challenges to them must be brought promptly within a three-year period.

Regarding conflicted transactions, the Delaware Supreme Court’s April 2024 Match Group decision significantly expanded the application of the MFW doctrine. It is now settled that for any transaction where a controlling stockholder receives a “non-ratable benefit” – not just take-private mergers – the “entire fairness” standard applies unless the deal is cleansed by both a wholly independent special committee and a majority-of-the-minority vote. Notably, the Court clarified that every single member of the special committee must be independent; a mere majority is no longer sufficient to secure the protections of the business judgement rule.

Tax Reform: The One Big Beautiful Bill Act (OBBBA)

The OBBBA, signed into law in July 2025, represents one of the most consequential tax overhauls affecting private equity (PE) in recent years. Key provisions include:

• restoration of 100% bonus depreciation;
• elimination of capitalisation requirements for domestic research and experimental expenditures;
• broadening of Section 1202 (QSBS) eligibility; and
• taxpayer-favourable changes to the Section 163(j) business interest limitation.

The OBBBA has reshaped investment incentives by enhancing after-tax cash flows, encouraging longer holding periods and making capital-intensive businesses more attractive targets. However, the OBBBA also includes significant Medicaid spending reductions and the expiration of enhanced ACA subsidies, creating revenue challenges for healthcare providers with implications for PE-backed healthcare portfolio companies.

Corporate Transparency Act (CTA)

The CTA’s beneficial ownership reporting regime has narrowed materially. Under FinCEN’s March 2025 interim final rule, entities created in the United States and their beneficial owners are exempt from beneficial ownership information (BOI) reporting. Certain foreign entities that qualify as “reporting companies” and do not fall within an exemption remain subject to BOI reporting obligations. PE sponsors should therefore avoid describing CTA compliance as a broad-based ongoing requirement for domestic portfolio companies and instead assess whether any foreign reporting entities in the structure remain in scope.

Private equity transactions in the US are subject to oversight by multiple agencies. While core legal frameworks have remained stable, agency enforcement priorities have evolved, particularly across antitrust, national security and fund governance.

Antitrust – FTC and DOJ

The FTC and DOJ are the principal US antitrust regulators for M&A and have taken an increasingly aggressive approach towards private equity and technology deal activity. Both agencies have challenged deals involving consolidation in fragmented markets, especially in healthcare, technology and consumer services, targeting not only traditional mergers but also platform acquisitions and common ownership arrangements. The agencies are scrutinising whether sponsors are creating durable market power through cumulative deal activity, leading to more second requests, longer timelines and earlier co-ordination with antitrust counsel. The Trump administration has indicated it intends to scrutinise large technology transactions among others.

Foreign Investment – CFIUS

CFIUS reviews M&A transactions that may result in foreign control of a US business, with particular attention to critical infrastructure, defence and personal data. For private equity sponsors, even minority stakes or indirect exposure to foreign LPs can trigger review where governance rights or access to information are implicated. CFIUS-specific closing conditions are now common in cross-border PE transactions. While most filings are resolved without penalty, failing to submit a reviewable transaction can result in significant enforcement action. A potential outbound investment regime may impose further restrictions on sponsor activity in sensitive technologies.

Securities Regulation – SEC

The SEC plays an increasingly active role in regulating private equity fund governance and disclosure. The SEC’s Private Fund Adviser Rules were vacated by the Fifth Circuit in 2024 and formally rescinded. However, the SEC’s focus on transparency and investor protection continues, with tighter controls around preferential treatment of LPs and fair valuation processes and scrutiny of conflicts of interest. Enforcement risk is elevated for managers that fail to standardise disclosure across investor classes.

Global Impact – EU FSR

The EU Foreign Subsidies Regulation (FSR), effective mid-2023, applies to US sponsors acquiring EU-based targets where non-EU state-linked financial contributions are involved. While the regulation has not blocked deals to date, it has introduced a material filing burden and timeline risk, and FSR filings are increasingly being run in parallel with merger control approvals. The regime has introduced additional diligence and timeline considerations for globally active sponsors, particularly those with sovereign-backed LP capital or subsidised portfolio companies.

Legislative Scrutiny of PE in Healthcare

State-level oversight of PE investment in healthcare has escalated significantly. At least 15 states have enacted healthcare transaction review laws, with California and Oregon leading efforts to restrict PE influence over clinical decision-making and impose mandatory pre-closing notice requirements. Massachusetts, Indiana, New Mexico and Washington, among others, have also passed laws heightening oversight. PE sponsors must account for these state-specific review regimes, which may impose extended timelines and conditions on approval.

Compliance Themes

Sanctions and anti-bribery compliance remain front of mind, while ESG has become less of a focus following the Trump administration’s scrutiny. Cross-border transactions involving China or Russia-related exposure now routinely trigger elevated diligence. The DOJ has reiterated its focus on Foreign Corrupt Practices Act (FCPA) enforcement and successor liability.

Defined Contribution Plans and Private Equity

The US Department of Labor has proposed a rule addressing alternative investments, including private equity, within defined contribution retirement plans. The proposal clarifies circumstances under which plan fiduciaries may include private equity exposure within professionally managed vehicles such as target-date funds, where exposure is limited and integrated into a broader portfolio. Key considerations for fiduciaries include fees, valuation methodologies, liquidity constraints and participant communication. If finalised, the rule could facilitate broader but controlled access to private equity and other alternative assets within defined contribution plans, representing a meaningful source of long-term funding for sponsors.

Legal due diligence in US private equity transactions is comprehensive and tailored to the size, complexity and risk profile of the target. It serves as both a risk mitigation tool and a value confirmation exercise, ensuring that liabilities are identified early and commercial assumptions are validated, including to support any contemplated representations and warranties insurance (RWI). Legal advisers co-ordinate closely with deal teams to prioritise high-impact issues.

Scope and Process

Diligence is generally led by the buyer’s legal counsel, with support from subject-matter experts in tax, regulatory, IP/IT, benefits, data security, labour and environmental law. Review is conducted through virtual data rooms, with rolling reporting and red-flag summaries for investment committees, lenders and RWI insurers.

Key Areas of Focus

Key areas of focus for legal due diligence are as follows.

• Corporate governance and capitalisation – Confirmation of valid formation, authorised and outstanding equity (including equity plans), shareholder rights, and historical M&A, reorganisations or similar transactions.
• Material contracts – Scrutiny of customer, supplier, partnership and financing agreements for termination rights, change of control provisions, exclusivity, most favoured nation (MFN) clauses, other restrictive terms, uncapped indemnification and revenue concentration risks.
• Labour and employment; benefits – Assessment of classification risks (employee versus contractor), compliance with wage and hour laws, restrictive covenants, benefits obligations and collective bargaining exposure. Change-in-control and retention triggers are flagged for integration planning and cost modelling.
• Data privacy and cybersecurity – Diligence has evolved to include in-depth review of data processing practices, third-party access, cyber incident response protocols and sector-specific compliance (eg, Health Insurance Portability and Accountability Act (HIPAA) for healthcare, Gramm-Leach-Bliley Act (GLBA) for financial services). Regulatory fines, unresolved breaches and the use of AI or sensitive datasets are often considered material.
• Regulatory and licensing – For regulated industries, such as healthcare, education, defence or financial services, licensure, accreditation and compliance with agency-specific rules (eg, FDA, FINRA, DOE, DOD) and compliance with international trade laws are reviewed. Failure to maintain good standing or change-of-ownership approval requirements can directly impact closing readiness.
• Litigation and disputes – Current or threatened litigation, government investigations and settlement history are analysed for contingent liability and reputational impact.
• Tax compliance – Review includes historical filings, transfer pricing, loss carryforwards, employee classification (for payroll taxes) and any open audits. Diligence also informs post-closing structuring and risk allocation for tax indemnities.
• Environmental – Applicable primarily to industrial, real estate and infrastructure targets. Site assessments, remediation obligations and legacy liability are examined, particularly under state-specific environmental regimes.

Vendor due diligence (VDD) is not a common feature of US sponsor-led exits. While occasionally used to streamline processes and reduce bidder friction, VDD is far less formalised than in Europe. Where used, sponsors employ VDD to control the narrative, reduce management distraction and facilitate RWI underwriting. Sell-side legal advisers typically prepare indexes and diligence trackers, while buyer legal advisers prepare red-flag reports and executive summaries. Reliance is not typical; sell-side advisers usually disclaim reliance, though sellers may in limited circumstances grant capped reliance rights to the winning bidder.

Most US private equity deals are structured as equity or asset purchases for private targets, or statutory mergers for public companies (or private companies with a large number of shareholders). Public takeovers typically use a one-step merger or (less commonly) two-step tender offer plus merger, and Delaware law enables expedited closing if majority shares are tendered.

Public Versus Private Target Structures

Public deals involve one-step mergers or (in certain cases) tender offers using a shell vehicle, often governed by shareholder approval thresholds and securities laws, with limited conditionality and no post-closing recourse. For private targets, transactions are governed by bespoke purchase agreements with negotiated representations, warranties, and limited if any indemnities, though market norms increasingly push towards no recourse and RWI-backed structures.

Auction Versus Negotiated Sales

In competitive auctions, sellers typically set the terms and distribute seller-friendly draft agreements. Terms are “public-style”, with minimal indemnity, broad disclosures and limited buyer conditions. Private equity buyers in auctions often accept no financing outs, compressed timelines and seller-friendly documents to stay competitive. In contrast, negotiated (proprietary) deals provide buyers with greater flexibility to negotiate economic terms, including earn-outs, broader warranties, tailored covenants and, for private transactions, limited indemnities. Founder-owned and management-heavy businesses tend to permit more customised structures.

US private equity funds nearly always acquire through a dedicated acquisition vehicle, not the fund itself. This special purpose vehicle (SPV), often referred to as “BidCo” or “Newco”, is formed specifically for the transaction and capitalised with a mix of equity and third-party debt at closing. BidCo is usually a Delaware limited liability company (LLC) or corporation.

In most cases, an additional holding company layer (“HoldCo”) is inserted above BidCo to permit structurally subordinated debt and/or equity, manage governance, allocate various classes of equity, and/or facilitate rollover participation and issuance of incentive equity to management.

The fund itself (typically a limited partnership or LLC) usually does not sign the purchase agreement. Instead, it provides (i) an equity commitment letter to fund BidCo at closing, enforceable by the seller if certain conditions are met, and/or (ii) a limited guarantee covering reverse termination fees or other limited performance obligations up to a negotiated cap. This structure ring-fences risk and ensures execution certainty. Sellers typically insist on clear funding mechanics and specific performance rights, including pushing larger sponsors to agree to a full equity backstop commitment letter to eliminate debt financing risk.

Most US private equity deals are financed as leveraged buyouts (LBOs), using a mix of sponsor equity and third-party debt. Equity contributions typically range from 30% to 60%, depending on deal size and market conditions. Traditional bank lending has pulled back given recent economic conditions, with private credit funds now funding approximately 80% of LBO financing through unitranche and direct loan structures.

Equity Commitment Letters (ECLs)

Sponsors typically provide an ECL at signing, committing to fund the acquisition vehicle with equity at closing. The ECL gives sellers enforceable rights in certain circumstances, ensuring specific performance if closing conditions are met. This structure delivers certainty of funds without exposing the private equity fund or its LPs to broader liability. In competitive auctions, some sponsors are willing to provide a full-equity backstop with the intention of refinancing later, mitigating deal risk and capitalising on future rate improvements.

Debt Financing Practices

While fully “certain funds” debt commitments are typical in large or auctioned deals, mid-market buyers may proceed with highly confident letters or lender term sheets in limited, less competitive circumstances. Private credit remains a leading source of committed debt in an environment where execution certainty, flexibility and tailored financing structures remain important.

No Financing Conditions

US private equity deals almost never include a financing out. Sellers demand certainty, and if debt fails the buyer generally pays a reverse termination fee (or in certain circumstances is forced to close under a fully equity backstop commitment letter if/when negotiated by the seller to eliminate debt financing risk). Acquisition agreements typically include buyer representations affirming financing sufficiency (including through debt and/or equity commitment letters) and covenants to pursue funding in good faith.

Consortium deals and co-investments are common features of the US private equity landscape, particularly for large or sector-specific transactions. Co-investors usually participate through parallel vehicles or invest directly in the acquisition entity. They sign onto equity holder agreements with customary tag-along rights, but limited control. Anti-dilution protection is rare outside pre-emptive rights.

Consortium Deals

Multi-sponsor consortia remain rare but have re-emerged for mega-cap transactions where no single fund can absorb the equity check alone. These are often structured with shared governance rights and co-ordinated due diligence but require careful management of antitrust and confidentiality concerns.

LP Co-Investment

LP co-investment is typical and widespread for US private equity deals. Large institutional LPs (pensions, endowments, sovereign wealth funds) frequently co-invest alongside their GP at reduced or no fees. These stakes are typically passive, with limited or no governance rights, though larger LPs may negotiate for observer rights and/or information access.

External and Strategic Co-Investors

In some cases, sponsors bring in external investors (eg, family offices, other funds, corporates) for additional capital or domain expertise. Strategic co-investors are more common in energy, infrastructure or healthcare transactions. Their participation often comes with bespoke rights, such as put/call options or board representation, and in many cases subject to management fees and/or promote in favour of the controlling sponsor.

US private equity transactions commonly use purchase price adjustments for private transactions but a fixed price per share is almost universal for acquisitions of public companies.

Purchase Price Adjustments

Purchase price adjustments remain the default across the board in US private company transactions. These limited adjustments typically account for actual cash, debt, transaction expenses and working capital levels as of closing and are often supported by a limited escrow. The buyer pays an estimated price at signing, followed by a true-up once the final balance sheet is agreed. This ensures the buyer receives a company with a normalised working capital position and no unexpected debt or transaction expenses.

Locked-Box Pricing

Locked-box mechanisms are not common in the United States but seen on occasion in larger, competitive processes, particularly PE-to-PE or sponsor-led exits, where deal certainty and minimal post-closing disputes are prioritised and/or there is a significant European presence. Pricing is fixed off a historic balance sheet date, and the seller covenants not to extract value (“leakage”) between that date and closing. In some cases, a “ticking fee” or interest-like accrual is negotiated to compensate the seller for the period between locked-box date and closing.

Earn-Outs

Earn-outs are used selectively in the United States, typically in growth or founder-led companies where future performance is uncertain. A portion of the purchase price is paid contingent on meeting financial or commercial milestones (eg, EBITDA targets, product launches or regulatory approvals). While earn-outs can bridge valuation gaps, they can give rise to post-closing disputes. Accordingly, they are carefully structured with defined metrics, reporting mechanics and covenants around operational conduct.

Rollover Equity

Rollover equity is common in US private equity transactions involving founder-led or management-heavy businesses. Management sellers often retain a minority interest in the go-forward structure, usually on the same economic terms as the sponsor. This structure aligns incentives and supports continuity. The rollover is typically implemented via a tax-free transaction and is not taxable until a subsequent exit.

Sponsor-Specific Considerations

Private equity sellers generally prefer fixed price deals to avoid post-closing adjustments and escrow delays, but limited purchase price adjustments and related escrows are common in United States private company transactions. Earn-outs are generally disfavoured given their fund wind-down timelines and capital return mandates. Private equity buyers tend to follow market norms for limited purchase price adjustments in bilateral United States deals and are willing to accept a locked-box when mandated in auctions. Where locked-box is used, private equity buyers seek leakage protection and strong representations on account accuracy.

Where locked-box pricing is used, most US deals do not include a “ticking fee” but some do so calculated on an annualised basis (eg, 3% to 5%) accruing from the locked-box date to closing. This compensates the seller for carrying the economic risk of the business during the interim period. Leakage provisions are standard where there is locked-box pricing. The seller typically covenants not to extract value from the business post locked-box date, except for agreed items (eg, salary, permitted dividends). If unpermitted leakage occurs, the buyer is entitled to reimbursement (and/or post-closing true-up), in some cases with interest from the leakage date to settlement.

Disputes around purchase price mechanics, especially in closing accounts deals, are typically referred to an independent accountant or expert. These clauses are well-established and offer a streamlined path to resolution without triggering broader legal proceedings. Even in locked-box deals, expert determination provisions may be included for leakage or accounting-related disputes. Legal disputes over interpretation (eg, fraud, breach of covenant) are typically carved out from the expert’s scope and resolved via court process (or on some occasions arbitration).

Outside regulatory approvals and customary closing conditions (eg, bring-down of representations and covenants, no material adverse effect, etc), private equity acquisition agreements typically include minimal conditionality.

Financing Conditions

PE buyers are expected to provide committed financing at signing and do not benefit from financing outs. Sellers require equity commitment letters and, where applicable, debt commitment papers (or in limited circumstances highly confident letters).

Third-Party Consents

Buyers typically assume the risk of obtaining third-party consents unless certain contracts are critical to the business. Shareholder approval is more relevant in public or minority investment contexts.

Material Adverse Effect Clauses

Material adverse effect (MAE) conditions are customary but tightly negotiated with many customary exceptions. Delaware law also sets a high bar for proving an MAE, and courts have been reluctant to allow buyers to walk absent a durationally significant decline in the business.

In US private equity transactions, “hell or high water” (HOHW) undertakings – where the buyer commits to take all actions necessary to secure regulatory approval, including divestitures – are occasionally accepted but typically reserved for highly competitive deals where regulatory risk is known and limited. PE buyers generally negotiate “reasonable best efforts”, often coupled with caps on required remedies. However, where regulatory approval is a material risk, sellers may demand stronger commitments, and buyers may offer a modified HOHW covenant limited by materiality thresholds and/or geographic/product scope.

HOHW undertakings are less common in CFIUS or foreign investment reviews due to the discretionary nature of such reviews. Sponsors generally negotiate “reasonable best efforts” in that context. The EU Foreign Subsidies Regulation (FSR) is also becoming relevant in cross-border deals involving US sponsors acquiring European assets with state-backed capital, with deal timelines and co-operation covenants increasingly affected.

Reverse break-up fees are fairly standard in PE-led transactions, particularly where debt financing is involved. These fees are typically payable if the buyer fails to close due to financing failure, regulatory block or material uncured breach. Reverse break-up fees typically range from 5% to 7% of equity value for public company transactions or enterprise value for private company transactions, depending on perceived risk and deal size. In some cases, a tiered structure is used (eg, lower fee for financing failure, higher fee for antitrust issues) and higher reverse break-up fees are common in competitive auctions. These fees serve as a substitute for broad seller remedies, offering predictable damages in the event the deal does not close.

Target break-up fees are also common (2–4% of deal value) in public deals, typically payable if the target board accepts a superior offer or materially breaches its obligations.

Typical termination scenarios include the following.

• Mutual consent – The parties may agree to terminate the deal at any time by mutual written agreement.
• Outside (longstop) date – Either party may terminate if the transaction has not closed by a specified longstop date, typically four to six months from signing in private deals, though this may stretch to nine to 12 months for public transactions or deals requiring complex regulatory approvals (eg, CFIUS, antitrust in multiple jurisdictions, telecommunications).
• Legal prohibition (injunctions) – Either party may terminate if a final, non-appealable governmental injunction or order prohibits the consummation of the transaction. This applies most often where an antitrust or national security authority obtains a court order blocking the deal or where a court enjoins the closing on public interest or regulatory grounds.
• Material breach – Either party can terminate if the other has materially breached its obligations, and such breach remains uncured (typically 15–30 days after notice) and is a primary cause of the closing conditions failing to be satisfied.
• Financing failure (reverse break fee) – In deals where the buyer fails to close despite all conditions being met and the third-party financing is unavailable, the seller may terminate and receive a reverse termination fee as liquidated damages.

While the legal framework governing private deals is the same, PE-backed sale transactions are structured for speed, certainty and clean exits, with market-standard terms that minimise post-closing entanglements. Corporate-backed sell-side deals, by contrast, tend to be more bespoke, with greater tolerance for complexity, conditionality and shared risk, particularly in strategic combinations.

Private equity sellers typically seek a clean exit, pushing for limited recourse structures, reliance on RWI, no indemnities and no survival periods. In contrast, corporate sellers may offer broader representations and tolerate indemnities, especially in strategic deals or carve-outs. RWI is standard in PE exits and often buyer-funded in auctions. PE sellers are motivated to avoid escrow holdbacks or delayed distributions, while corporate sellers may be more open to bespoke structures depending on strategic objectives.

Private equity buyers are more accustomed to “public-style” certainty, limited closing conditions, no financing outs and robust financing commitment structures. Corporate buyers may push for broader walk rights and create greater regulatory approval risk. Sellers often prefer PE-backed buyers for their execution speed and predictability, particularly where they offer low regulatory risk and a full equity backstop.

In US private equity exits, warranty and indemnity exposure is tightly limited, reflecting the PE seller’s priority to achieve a clean exit with minimal tail liability. Market-standard practice relies heavily on RWI, with the seller’s actual post-liability often reduced to nominal levels for limited purchase price adjustments for debt, equity and transaction expenses as of closing. Tax matters are either covered under RWI or subject to a limited indemnity with a longer survival period (typically six to seven years). Known issues excluded from RWI are usually only addressed via specific indemnities if they are significant, and such indemnities are generally supported by escrows or separate caps.

Disclosure schedules remain central and broad data room disclosure is not customary in US deals.

Beyond RWI (which is widespread in private equity deals, as noted in 6.9 Warranty and Indemnity Protection), several additional protections are common.

• Restrictive covenants – Non-compete and non-solicitation clauses apply to management and, in many cases, to private equity sellers (although non-competes are limited to a list of prohibited acquisition targets for certain private equity sellers reluctant to agree to a non-compete).
• Special indemnities – For significant known and uninsured risks, typically capped and time-limited.
• Clawbacks – Less common, but may be agreed in earn-out or rollover structures.
• Intentional fraud carve-outs – Generally preserved and excluded from liability caps to the extent related to the representations and warranties in the purchase agreement.

Litigation is not common in private equity transactions. Earn-outs are the most commonly litigated provisions, often involving disputes over whether the buyer operated the business to maximise the earn-out or whether performance metrics were fairly applied. Other recurring issues include:

• post-closing purchase price adjustments and accounting interpretation;
• allegations of fraud;
• enforcement of restrictive covenants (eg, non-compete violations); and
• termination disputes involving MAE claims or failure to satisfy closing conditions.

Delaware courts generally enforce provisions as written but require clear language. Sponsors are increasingly investing in up-front drafting discipline to mitigate exposure.

Public-to-private transactions involving PE bidders are a recurring feature of the US deal landscape, particularly when public valuations are depressed or capital markets are volatile. Activity rebounded strongly in 2024 and 2025, with 2025 marking the third-highest year ever for take-private activity. Notable transactions included Sycamore Partners’ USD23.7 billion acquisition of Walgreens Boots Alliance, 3G Capital’s USD11.3 billion acquisition of Skechers and Blackstone Infrastructure’s USD11.5 billion take-private of TXNM Energy. The VIX index climbed to levels not seen since the pandemic in H1 2025, creating price dislocation and opening a window for buyout firms to acquire public companies at attractive valuations.

Board Role and Fiduciary Oversight

The target company’s board of directors plays a central role in public-to-private transactions. In line with fiduciary duties under Delaware law, the board is expected to assess the transaction independently, with a view towards maximising shareholder value. Where there is any potential management participation (eg, rollover equity), the board typically forms a fully independent special committee to evaluate and negotiate the deal. The committee often retains its own legal and financial advisers and will generally seek a fairness opinion. Delaware courts apply enhanced scrutiny in these deals, especially where insiders are involved. A robust and well-documented process is essential to withstand potential post-closing litigation.

Documentation and Agreements

US public-to-private transactions are governed by the merger agreement, which includes the key commercial terms, representations, covenants, deal protections (eg, no-shop provisions, break fees) and closing conditions. Where the private equity bidder has a pre-existing relationship with the company, such as a PIPE (Private Investment in Public Equity) investment, board seat or commercial partnership, procedural protocols and careful conflict management are expected.

In the US, material shareholding disclosures are primarily governed by Section 13 and Section 14 of the Securities Exchange Act of 1934, and they play a critical role for private equity-backed bidders preparing to launch a tender offer or accumulate a significant stake in a public company.

Schedule 13D – Active Investors

A PE-backed bidder acquiring more than 5% of a class of voting equity securities of a US public company must file a Schedule 13D within five business days of crossing the threshold if the intent is active – ie, to influence control, propose a transaction or engage with management. The filing must disclose the identity of the acquirer, source of funds, purpose of the acquisition, and any plans relating to the company. Amendments are required within two business days of material changes. Many PE firms acquire just under 5% of a target prior to making an acquisition proposal, keeping such shareholding private.

Schedule 13G – Passive Investors

If the private equity bidder acquires more than 5% but is purely passive (ie, no intention to influence control), a Schedule 13G may be used instead – though this is rarely applicable in a tender offer context. The passive investor must file within 45 days after year-end, or earlier if crossing 10% (triggering a five-day filing window).

Schedule TO – Tender Offers

A private equity bidder launching a tender offer must file a Schedule TO (Tender Offer Statement) no later than the date the tender offer is first published, sent or given to security holders. The Schedule TO must include:

• detailed terms of the offer (price, conditions, timing);
• source and amount of funds (including debt and equity financing);
• intentions regarding control and governance; and
• any material agreements or arrangements with respect to the target’s securities.

If the bidder already owns over 5% of the target, a Schedule 13D amendment must also be filed concurrently with the Schedule TO, aligning disclosure across forms.

There is no mandatory offer threshold under US federal law. Unlike some jurisdictions, the US does not require a bidder to make an offer for all outstanding shares upon crossing a particular control threshold. That said, regulatory and disclosure regimes, such as HSR antitrust filings and Schedule 13D reporting, impose obligations based on stake size, structure and intent. Sponsors must also assess attribution rules under HSR when multiple affiliated funds, co-investors or portfolio companies hold interests in the same target. State anti-takeover laws and corporate governance provisions (eg, poison pills, staggered boards) can create practical hurdles to creeping control strategies, even if no mandatory offer is triggered.

Private equity-sponsored tender offers in the US are overwhelmingly structured as all-cash transactions. Sponsors favour cash to provide deal certainty, reduce execution complexity, and align with fund return models. Use of stock consideration is rare in PE-led deals unless the bidder is a publicly listed platform or is partnering with a strategic investor. There are no statutory minimum pricing rules under US tender offer laws, but tender offers are subject to:

• equal treatment of shareholders (best price rule);
• fiduciary duties of the board (especially in recommending the offer); and
• market and proxy adviser expectations (including fairness opinions).

Premiums of 20–40% over unaffected trading prices are typical to secure board and shareholder support.

US tender offers may include reasonable, objectively determinable conditions, but cannot include a financing out. The bidder must be in a position to “promptly pay” upon offer closing.

Common Conditions

The following conditions are common:

• minimum tender (eg, more than 50% of shares);
• regulatory approvals (HSR, CFIUS);
• absence of a material adverse effect; and
• bring-down of target representations and compliance with covenants.

Deal Protections

Deal security measures include the following:

• match rights and information rights;
• non-solicitation or no-shop clauses (subject to fiduciary outs); and
• reverse termination fees, particularly where a newco is used as the bid vehicle or there is debt financing.

Where the sponsor acquires less than full ownership in a private transaction, it may negotiate governance rights such as board seats, consent rights over major decisions and access to financial information. These rights are usually formalised through equity holders’ agreements or charter documents. Debt push-downs typically require majority or full control of the operating company. Without full ownership, legal and fiduciary constraints may limit the ability to guarantee or assume acquisition debt.

Squeeze-Out Mechanisms

The following squeeze-out mechanisms are available under the Delaware General Corporation Law.

• Section 251(h) allows a follow-on merger without a vote once the buyer holds a majority of shares through a tender.
• Section 253 permits a short-form merger if the buyer owns 90% or more post-close.

Where these thresholds are not met, a long-form merger and shareholder vote may be required.

Private equity sellers generally have drag-along rights over co-investors to force the sale of a portfolio company. Irrevocable voting or tender agreements from major shareholders are common in sponsor-led public takeovers. These agreements are typically negotiated concurrently with the merger agreement and can provide crucial execution certainty, but Delaware corporate law limits pre-closing voting agreements by controlling shareholders in mergers.

Terms usually include:

• a commitment to vote in favour of the merger or tender shares into the offer;
• transfer restrictions during the offer period;
• limited fiduciary outs (for insider shareholders, if applicable); and
• bundled rollover and governance arrangements where the shareholder is participating post-close.

Institutional shareholders rarely negotiate outs unless they are insiders. For management shareholders or board members, fiduciary exceptions may apply in the event of a competing superior offer.

Equity incentivisation is a standard feature in US private equity transactions. Management participation is structured to align interests with the sponsor, retain key talent and support long-term value creation. Management teams typically receive 10–15% of the fully diluted equity in the post-closing structure, either through rollover investments, new grants or a mix of both. In founder-led companies, the equity stake may be higher. The instruments used range from direct common equity to options, restricted stock, and profits interests, depending on the corporate form.

Management participation is typically split between the institutional strip and a dedicated incentive pool (“sweet equity”). The sweat equity is junior to the sponsor’s capital and is structured to deliver upside only after a return of capital plus on occasion a preferred return to the fund, usually in the 8–10% IRR range if applicable. In LLCs, this is often implemented through profits interests (which have favourable capital gains tax treatment) or subordinated units, while corporations may issue options or restricted stock. Incentive equity is commonly subject to vesting and governed by a distribution waterfall.

Time-based vesting is the most common vesting construct (typically four years with a one-year cliff). Exit-based and performance-based vesting are often layered in, particularly for senior executives or founders.

Leaver provisions distinguish between “good leavers” and “bad leavers”. Good leavers typically retain vested equity and may receive fair market value for unvested shares. Bad leavers generally forfeit unvested equity and may be subject to repurchase at cost or a discount. Buyback rights, repurchase mechanics and valuation methods are set out in the equity documents and aligned with employment terms.

Restrictive covenants are standard for management shareholders (both institutional and incentive holders) and typically include:

• non-compete (12–24 months post-termination);
• non-solicit of employees, customers and suppliers;
• non-disparagement and confidentiality obligations; and
• IP and invention assignment clauses.

These restrictions are contained in employment agreements, equity agreements or both. Covenants generally survive termination and remain enforceable while equity is held. Courts assess enforceability based on reasonableness of scope, geography and duration. California remains an outlier jurisdiction where non-competes are generally unenforceable outside the sale of a business or disassociation of membership in a limited liability company.

Management shareholders usually have limited governance rights. Control typically remains with the sponsor. In select cases, founders or large rollover participants may negotiate observer rights or limited consent rights over material, adverse and disproportionate changes to their equity terms. Anti-dilution rights are rare and typically not granted to management outside limited pre-emptive rights if/when negotiated by senior management. Management generally does not control or influence exit timing. However, rollover equity typically includes tag-along rights, and, in some cases, limited consultation rights. Drag-along rights allow the controlling sponsor to compel a sale.

Private equity sponsors in US transactions exert tight governance control through a combination of board dominance, shareholder-level veto rights and extensive information access. These rights enable the sponsor to control strategic direction, manage downside risk and drive towards an efficient exit – core tenets of the private equity investment model. Management retains operational autonomy day to day, but strategic levers are firmly held by the sponsor.

Board Appointment Rights

The following levels of control are encountered.

• Majority control – If the private equity fund owns a controlling stake (which is typical), it will have the right to appoint a majority or all of the board of directors of the portfolio company.
• Management and minority representation – Often, one or more seats may be allocated to senior management (eg, CEO), rollover sellers (subject to equity thresholds and ongoing employment) and/or large co-investors.
• Observer rights – The sponsor may also appoint non-voting board observers, particularly in situations involving co-investors, minority LPs or large strategic partners.

Board composition is a primary mechanism by which private equity funds drive strategic direction, oversee performance, approve budgets and manage exits.

Reserved Matters (Shareholder Approval Rights)

In addition to board control, private equity sponsors typically require shareholder-level consent for key actions, often called “major decisions” or “reserved matters”. These may include:

• capital structure changes – issuance of new equity, debt instruments or securities with senior rights;
• M&A activity – acquisitions, divestitures, joint ventures or changes in control;
• liquidity events – IPOs, sales or recapitalisations;
• budget and strategic plan approvals;
• amendments to organisational documents (eg, charter, by-laws, LLC agreement);
• equity incentive plans and grants;
• affiliate transactions; and
• material litigation or settlements.

These rights are typically exercised by the fund acting in its capacity as majority shareholder, or by approval of a supermajority of voting shareholders (where multiple equity classes or co-investors are involved).

Information Rights

Private equity funds receive robust information and inspection rights, often more extensive than those required by law:

• monthly or quarterly financial reporting;
• annual budgets and business plans;
• board packages and minutes;
• access to management and facilities;
• audit rights and tax reporting; and
• pre-exit data (eg, quality of earnings reports, banker engagement).

These rights are typically built into the equity holders’ agreement or LLC agreement and are designed to allow the private equity sponsor to monitor portfolio performance and prepare for exits or refinancings.

Sponsors are generally not liable for portfolio company actions, provided corporate formalities are respected. Exceptions exist in limited cases.

• Veil piercing – If the sponsor fails to observe separateness (eg, commingling, undercapitalisation, inadequate records), courts may pierce the corporate veil.
• Joint employer and ERISA risk – In rare cases, private equity funds may be deemed joint employers or face ERISA (Employee Retirement Income Security Act) exposure if they control employee matters or pension obligations directly.
• Regulatory liability – Sponsors may be liable under successor liability doctrines (eg, FCPA) or as controlling persons for disclosure obligations in securities law. Environmental liability may also attach under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) if the sponsor is deemed an operator of contaminated sites.

Beyond classic sales and IPOs, US private equity exits now frequently include dual- and triple-track processes, recaps and GP-led secondary solutions, allowing sponsors to optimise timing, valuation and liquidity. Rollover equity remains common for management, while sponsor reinvestment is selectively used to support transition, de-risk timing or share in long-term value creation. The flexibility of these structures reflects a more strategic, multi-path approach to exit planning in today’s market.

Alternative Exit Pathways

Over the past 12 months, US private equity sponsors have pursued a broader range of exit structures. Dual-track exits remain common, particularly in healthcare, software and infrastructure. Triple-track exits, layering in a dividend recapitalisation process alongside a potential sale and IPO, have increased in prevalence as private credit markets reopened. Late 2025 saw special purpose acquisition companies (SPACs) make a comeback due to private equity overhang and increased regulatory scrutiny. Continuation vehicles (CVs), which comprised the majority of GP-led transactions, continued to gain significant traction in 2025, with GP-led secondary volume reaching approximately USD115 billion and representing approximately 14% of all sponsor-backed exit volume. These are typically structured as sales to a new fund managed by the same GP, with LP liquidity options and sponsor-led reinvestment. However, the rapid growth of CVs has raised conflict-of-interest concerns, as the GP acts on both sides of the transaction. LPs and regulators are scrutinising whether GP-led processes adequately protect investor interests, particularly regarding valuation and carry rollover. Best practices now include obtaining limited partner advisory committee (LPAC) waivers, commissioning independent fairness opinions and offering structured election mechanics. The SEC’s FY2026 Examination Priorities did not single out GP-led secondaries or CVs in a dedicated section, but they did continue to emphasise advisers’ fiduciary duties, conflicts of interest, valuation, fees and expenses, disclosures, and differential treatment of investors in private funds.

Rollover and Reinvestment Practices

The following practices occur in secondary sales, especially PE-to-PE transactions. Management teams often roll over a portion of equity, preserving alignment and signalling continuity. In certain deals, the selling sponsor may reinvest alongside the new lead sponsor, particularly in strong-performing companies with further upside. This is more common in club deals or structured minority exits. In corporate sales, private equity sellers generally fully exit, although partial rollovers can occur if the buyer is a strategic partner seeking a transitional ownership model. In IPOs, sponsors may execute a partial exit at listing, retaining a stake through the lock-up period and selling down over time. Full exits at IPO are rare due to market expectations and valuation impact.

Drag and tag rights are ubiquitous in US private equity structures for private companies. Drags ensure sponsor control and exit optionality, while tags provide protection for minority holders, especially institutional co-investors. Management participants typically have limited tag rights and are routinely subject to drag, reflecting their subordinate governance position and alignment through incentive equity. The typical drag threshold requires a majority or supermajority of voting equity (often >50% or 66⅔%) to trigger the drag. In sponsor-controlled companies, the private equity fund typically holds the requisite threshold unilaterally. The drag typically applies to all equity classes, with minority holders required to sell on substantially the same terms (including price, conditions and representations) and to waive appraisal rights, vote in favour of transaction and execute sale documents. Drag rights are commonly invoked to complete exits, especially where clean title is required (eg, IPO, corporate sale), but less common where all shareholders are already aligned (eg, in management-heavy cap tables).

In sponsor-led IPOs, the private equity firm typically agrees to a 180-day lock-up. These restrictions are negotiated with underwriters and cover both primary and secondary sales. Formal “relationship agreements” are not used in the US. Instead, sponsor rights are documented through:

• registration rights agreements;
• stockholders’ agreements (eg, board rights, consent rights); and
• controlled company governance exemptions (if the sponsor retains >50% voting control).

Sponsors often retain board seats and maintain governance influence post-IPO. Exit occurs via staged follow-on offerings. The dual-track IPO/M&A process remains a popular strategy for maximising valuation and hedging execution risk.