Acquisition and exit

Acquisitions of controlling stakes

Are there any legal requirements that may impact the ability of a private equity firm to acquire control of a public or private company?

Provided that the entity is not regulated within the British Virgin Islands (BVI) and does not hold BVI land, there are no legal requirements that may impact the ability of a private equity firm to acquire control of a BVI entity, provided that the purchaser is able to obtain the agreement of the requisite percentage of shareholders for their chosen takeover method.

Entities that are regulated within the BVI are subject to additional rules that may require the prior consent of the BVI financial regulator (the BVI Financial Services Commission) and, in certain cases, minimum contributed capital. BVI-regulated entities include, among other things, investment managers, brokers and dealers, registered agents, banks and trusts, each operating in or from within the BVI. Businesses that operate physically within the BVI and that are not regulated by the BVI Financial Services Commission will also generally hold a trade licence under the Business Professions and Trade Licenses Act 1990, and will need to comply with any conditions attached to that licence.

Non-belonger purchasers of entities that hold, directly or indirectly, land in the BVI will need to obtain a land­holder’s licence.

There is no BVI takeover code (or similar legislation) in force and there are no mandatory takeover offer rules in the BVI.

Exit strategies

What are the key limitations on the ability of a private equity firm to sell its stake in a portfolio company or conduct an IPO of a portfolio company? In connection with a sale of a portfolio company, how do private equity firms typically address any post-closing recourse for the benefit of a strategic or private equity acquirer?

Save for where the company is regulated within the BVI or holds BVI land, there are no key limitations on the ability of a private equity firm to sell its stake in a BVI portfolio company, or conduct an IPO.

There are no specific BVI matters that would affect the post-closing recourse for the benefit of a private equity or strategic buyer and requests will typically follow the trends in the jurisdiction of the purchase agreement (ie, indemnities, escrow agreements and the increased trend towards warranty and indemnity insurance).

Portfolio company IPOs

What governance rights and other shareholders’ rights and restrictions typically survive an IPO? What types of lock-up restrictions typically apply in connection with an IPO? What are common methods for private equity sponsors to dispose of their stock in a portfolio company following its IPO?

The governance of a BVI entity following an IPO would be predominantly influenced by the rules imposed by the relevant exchange. It would, however, be rare for shareholder rights and restrictions (such as board appointment rights or veto rights) to survive an IPO.

Similarly, lock-up restrictions would depend on the market and the commercial terms agreed between the parties. Where a large stake is to be sold following an IPO, private equity sponsors will most commonly dispose of this off-market in a ‘block trade’ at a discount to market price, in a bid to minimise the effect on the market. Smaller stakes are commonly sold ‘on market’ at the prevailing trading price.

Target companies and industries

What types of companies or industries have typically been the targets of going-private transactions? Has there been any change in industry focus in recent years? Do industry-specific regulatory schemes limit the potential targets of private equity firms?

The BVI is used as a jurisdiction for holding companies in a wide range of industries and, consequently, potential targets are varied and market trends mirror those onshore.

Where an entity is regulated within the BVI, prior approval of the BVI Financial Services Commission may be required prior to completion of a transaction. This has not historically, however, deterred private equity investors, as shown by recent takeovers by private equity firms of regulated fiduciary service companies (such as the takeover of TMF by CVC Capital Partners in 2018).