This country-specific Q&A covers common issues in private equity laws and regulations – including structuring matters, governance matters, and transaction terms in Bermuda.
What are the most common types of private equity transactions in your jurisdiction? What is the current state of the market for these transactions? Have you seen any changes in the types of private equity transactions being implemented in the last two to three years?
The majority of the private equity funds established in Bermuda have fund managers which are located onshore. As such, market trends in Bermuda track major onshore markets and in particular we see mirroring of investment strategies of US, European and Asian fund managers.
What are the most significant factors or developments encouraging or inhibiting private equity transactions in your jurisdiction?
Bermuda remains an attractive jurisdiction for investors as a well-regulated, politically stable and business-orientated jurisdiction.
Over the past two years key stakeholders, including the government, the financial services regulator (the Bermuda Monetary Authority (BMA)) and industry professionals have collaborated to make legislative changes aimed at improving Bermuda's private equity product that serves to further bolster its position as a premier offshore jurisdiction for private equity funds.
Key among the recent legislative changes is the introduction of the Limited Liability Company Act (LLC Act); see section 10 below for further details. Bermuda has also implemented a series of innovative changes to the existing partnership legislation. One of the clearly defined government mandates is to attract and retain entities in Bermuda. A previous barrier to this was the inability to easily transfer non-corporates to Bermuda while retaining their existing corpus. The amended partnership legislation permits a foreign partnership to re-domicile in Bermuda from any jurisdiction and vice versa. Under the new legislation, the re-domiciliation into Bermuda will not be deemed to create a new legal entity or affect the continuity of the partnership. The partnership will not need to transfer, assign or novate any of its assets or liabilities. In addition, an exempted, limited partnership that has elected to have seperate legal personality will also be able to convert into an exempted company or an LLC, further expanding the structuring opportunities available in Bermuda for private equity funds.
What are the most common acquisition structures adopted for private equity transactions in your jurisdiction? Have new structures increasingly developed (e.g. minority investments)?
Acquisition structures involving Bermuda companies where the shares are privately held may involve direct investment into the target company through the issue of new shares to the private equity investor or through a share transfer from existing investors to the private equity investor. Alternatively, the private equity investor may incorporate a holding company (HoldCo) into which the private equity investor will invest (alongside management and other shareholders) and in turn, the HoldCo would acquire the shares of the target company. The common methods of acquisition in such a structure are by way of a share purchase, share for share exchange, scheme of arrangement or a merger or amalgamation with the target company.
Where shares in the target company are publically held, structuring of a private equity acquisition usually takes one of the following forms:
- a general offer to purchase the shares of the target which must generally be accepted by the holders of at least 90% of the shares that are subject to the offer to compulsorily acquire the remaining shares;
- compulsory acquisition of the remaining shares where the acquirer holds 98% or more of the shares;
- a court sanctioned scheme of arrangement pursuant to section 99 of the Companies Act 1981, as amended (Companies Act). A scheme of arrangement requires board approval (via a simple majority or higher if required by the constitutional documents) and shareholder approval (via a majority in number of shareholders whom also represent three-quarters of the votes at a a special general meeting convened by the court to approve the scheme of arrangement); and
- amalgamations or mergers pursuant to the Companies Act. An amalgamation is when two or more companies amalgamate and continue as one company. A merger is when two or more companies merge into one another with only one surviving company. The approval process is the same for amalgamations and mergers. The board of directors and shareholders of the company must approve the amalgamation or merger. Statutorily, an amalgamation or merger requires the approval of 75% of the shareholders present and voting at a special general meeting; however, this majority can be increased by the constitutional documents of the company. All shareholders (including non-voting shareholders) have a right to vote in respect of a merger or amalgamation. Dissenting shareholders also have a right to apply to the courts to have the fair value of their shares assessed within one month of the notice of the special general meeting.
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This copy was originally prepared for the ICLG to Private Equity.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.