Structuring Joint Bidding Agreements for Private Equity Funds in M&A: Key Considerations

Increasingly, investment funds are teaming up for joint investments in companies of all sizes, from large public company targets to local, privately held assets. This practice was common before the 2008 financial crisis and has begun to reemerge as a common investment tactic for sophisticated financial sponsors. Co-bidding relationships may be established on an ongoing basis under a joint venture entity or other jointly-owned special purpose acquisition vehicle, and, typically, they are initially documented with a joint bidding agreement.

A well-drafted joint bidding agreement serves as a useful guidepost in setting expectations and avoiding misunderstandings during a joint bid process in a competitive M&A auction. Since the objectives and risk tolerances of co-bidders can be different, there is potential for disagreement among co-bidders as to certain substantive and procedural aspects of the submission and finalization of a joint bid.

One example of a potentially contentious aspect of a joint bidding relationship is the due diligence investigation that will be conducted by the bidding consortium. Co-bidders must decide whether to divide the due diligence effort among themselves equally or whether a lead member will be primarily responsible for vetting the investment, with other members relying on the lead member’s efforts. A useful joint bidding agreement should also clearly set forth how parties would share due diligence expenses.

Further, joint bid transaction structuring questions may require lead time to address. Should a new investment vehicle be formed? Should each co-bidding sponsor create its own wholly owned acquisition vehicle that will then participate in joint venture acquisition? Should these entities be formed at the bid stage or only after winning exclusivity with the target?

Listen as our experienced panel discusses joint bidding agreements and some of the critical structuring, communication, and associated due diligence issues that sponsors and their counsel should consider in such situations.

1. Permissible use of joint bidding agreements in M&A auctions and other scenarios
2. Transaction structuring matters
3. Confidentiality obligations and noncompetition covenants among co-bidders
4. Selection and engagement of third-party transaction advisors
5. Communications protocol between the consortium and the target
6. Cost sharing
7. Due diligence planning
8. Termination and withdrawal rights

The panel will review these and other key issues:

• What are the upfront issues to resolve before entering into a joint bidding agreement?
• How should the parties address the engagement of transaction advisers, or conducting due diligence on assets to be acquired, in the joint bidding agreement?
• What are the primary concerns regarding communications with the target during the auction process and what should the joint bidding agreement say about such communications?
• When should parties be entitled to withdraw from or terminate a joint bidding relationship and how should transaction costs be allocated?