In announcing a $1.3 billion take-private bid by Bain Capital, Bright Horizons Family Solutions Inc. notes that the buyout firm doesn’t have a financing condition. That would imply that Bain Capital, come heck or high water in the credit market, would have to see the deal through.
The pica type of the regulatory filing, however, reveals a more nuanced approach to deal-making that both gives Bain Capital plenty of wiggle room and suggests that Bright Horizons paid attention to the broken deals of the last half of 2007. Bright Horizons and Bain Capital negotiated a deal that gives each side a little protection.
Bain Capital is agreeing to pay a 47 percent premium for Bright Horizons, whose stock was trading down 13 percent in the year before Bain Capital made its offer. In addition to landing such a healthy premium, Bright Horizons negotiated a reverse break-up fee of $39 million—equivalent to 3 percent of the deal’s value.
For reverse termination fees, which buyout firms must pay if they break off or walk away from deals, the norm had been 2 percent during the last cycle. Attorneys who draw up deal agreements have predicted that companies, fearful of seeing their deals fall apart, would exert more leverage on buyers by raising reverse termination fees in 2008. Bright Horizons has done so.
The reverse break-up fee follows a two-tiered structure. Bain Capital would be responsible for paying the $39 million penalty if its lenders balked at providing financing. (Goldman Sachs Group has agreed to provide leverage for the deal through two debt funds, including its gargantuan mezzanine vehicle.) In such an event, it’s probable, thought not certain, that the lender would pay this fee.
But if Bain Capital, and not its lenders, grew weary of the company—a narrative that seemed to play out in some of the failed deals of 2007—then the buyout firm would be liable for an even bigger payout. The deal agreement calls for Bain Capital to pay the $39 million fee plus any additional losses incurred by Bright Horizons, though not necessarily its shareholders, because of the broken deal. The agreement doesn’t provide details on how those losses would be calculated, but the aggregate penalty is capped at $66 million.
In other words, the deal agreement doesn’t contain an iron-clad provision holding Bain Capital to complete the deal no matter what, which is probably something public company boards of directors would like to have written into contracts after seeing their peers get burned by busted deals. But the deal agreement does show that Bright Horizons learned some lessons from 2007 and negotiated greater protections for itself.