The take-private REIT and Real Estate M&A market has remained active throughout the first half of 2025 as increased and persistent volatility in the stock market, coupled with private funds and others having vast amounts of dry powder and seeking higher yield opportunities, has resulted in expanded options for buyers considering privatization transactions. Highlighted below are our top tips that both buyers and sellers should consider as they review strategies around take-private transactions.
High Price Wins. A seller's board of directors generally has an obligation to obtain the highest price reasonably available for its investors in an all-cash transaction. Even when the price offered represents a premium, a seller's board of directors will consider the offer in the context of the current positioning and prospects of the standalone company, including the company's long-range forecasts, and will receive input from a financial advisor on valuation before determining whether to move forward with a sale process.
Exclusivity Is Rare. In light of duties of a seller's board of directors, pre-signing exclusivity is relatively uncommon absent a preemptively high offer price, and, if granted, exclusivity is typically for a short duration. Further, buyer and seller will negotiate whether the merger or purchase agreement includes a "go-shop" provision, which allows a seller to solicit other offers for a prescribed period of time after the transaction is announced, or a "no-shop" provision (sometimes a two-tier "no-shop" with varying break-up fees during different periods after announcement), which only allows a seller to respond to unsolicited third-party offers if such an offer is reasonably likely to constitute a superior proposal, in each case, prior to the receipt of stockholder approval, as well as any related break-up fee payable to buyer.
Fixed Consideration and Absence of Adjustments. Typical purchase price adjustments negotiated in private M&A transactions, such as cash free/debt free, networking capital, severance costs and transaction expenses adjustments, generally do not apply in take-private transactions. Therefore, these costs and expenses need to be scoped in advance and included in the financial model of the buyer or otherwise addressed through the operating covenant restrictions in the merger or purchase agreement.
More Seller Process = Less Buyer Control. The sale process will be driven by the seller's board of directors, which, in conjunction with its financial advisor, will set process gates and attempt to control the timing of the transaction. Deal communications between the parties are typically channeled through financial and legal advisors, and buyers should expect that the seller will request that it execute a confidentiality agreement with a standstill provision.
Public Company Process = Less Buyer and Seller Control. As compared to private M&A transactions, securities law disclosure obligations, limitations on use of non-public information, restrictions on trading and hedging, limitations on toehold ownership stakes and other public REIT-specific dynamics will limit flexibility and pace of both buyers and sellers in getting deals done.
No Post-Closing Recourse. Closing conditions are generally limited and will relate primarily to receipt of required stockholder approval or otherwise will be generally tied to a material adverse change standard of the seller. Additionally, given that the public company and its stockholders will not remain after the completion of the transaction, the buyer will not have any post-closing recourse against any party for breaches of representations, warranties, or covenants. Therefore, pre-transaction signing due diligence is the buyer's single shot to assess and value the target (which includes all company-level attributes, in addition to all property-level issues). Lastly, post-closing escrows and hold-backs are not standard in public M&A privatization transactions, and R&W insurance, while potentially available to address certain liabilities, is often cost-prohibitive in take-private transactions.
Financing Certainty and Structure. In take-private transactions, financing conditions are rare and they materially disadvantage a bid. A seller will expect fully executed debt and equity commitment letters, including a limited guarantee of certain merger or purchase agreement terms, at the time of the signing of the merger or purchase agreement. The merger or purchase agreement may also include provisions related to buyer's financing, including (i) setting an "inside" closing date or minimum marketing period, (ii) buyer representations regarding its financing, (iii) covenants of seller to cooperate and assist buyer in securing financing, (iv) remedies/specific performance and (v) a "reverse" break-up fee payable to seller in the event buyer's financing fails. Many fund buyers would typically purchase alongside others (via co-investors, consortiums, joint ventures, etc.), and accordingly, assembling equity and debt financing, even with a discretionary fund as the primary purchaser, often takes advanced planning and effort to firm up buyer capital. The above limitations on information usage, trading, hedging, etc., will similarly apply to all of buyer's transaction constituents.
Keeping Management in the Game or Out. Consideration will need to be given to the treatment of equity awards in the transaction and whether equity awards will be accelerated, assumed or substituted (including what is permitted or required under existing equity compensation plans and agreements), as well as any severance or employment agreement benefits. Additionally, operating covenants in the merger or purchase agreement will need to be negotiated and will generally significantly limit compensation changes and the grant of equity awards between signing and closing and may provide that the buyer will maintain existing cash compensation levels and benefits for some period of time post-closing of the transaction. A Section 280G analysis will need to be undertaken to determine whether anyone may be subject to the 20% excise tax on golden parachute payments and potential tax mitigation actions should be considered in the preliminary transaction stages. For private fund buyers, post-acquisition compensation and incentives should also be considered and priced into the deal. For example, pricing should reflect whether management will remain internalized versus become externally-managed, how carried interest and equity schemes such as LTIP programs differ and how investment lifecycles and exits may differ, among other considerations.
There Are No Secrets. Close coordination between buyer and seller regarding communication will be needed throughout the deal process in order to avoid leaks prior to signing and to ensure the deal teams are speaking with one voice. Further, there will be numerous required public communications made by buyer and seller post-signing/pre-closing. These communications include announcement press releases and investor and employee communication materials, which are subject to filing with the Securities and Exchange Commission, the filing of the merger or purchase agreement and related required disclosures, any regulatory filings, and proxy statement or tender offer filings. The proxy statement or tender offer materials will include detailed and robust disclosure regarding the transaction process, seller financial advisor's financial analyses and fairness opinion, and interests of seller directors and officers in the transactions, including any compensatory arrangements between seller and buyer.
Inevitable Stockholder Litigation. Practically all public company sale transactions result in stockholder litigation, and such litigation usually relates to allegations of breach of fiduciary duty against the seller board and/or inadequate disclosure matters. Plaintiffs in this type of litigation may seek monetary damages or to enjoin the transaction. Buyer will be required to close over litigation and will bear the cost of any such stockholder litigation. In addition, FINRA will conduct an investigation into any trading in the seller's stock preceding the announcement of the transaction.
REIT and UPREIT Tax Considerations. Transactions involving a REIT target will have additional, REIT-specific tax and related deal considerations. Buyer diligence will need to include REIT qualification for current and prior periods, and buyer will need to focus on maintaining the target's REIT tax status through the closing of the transaction and beyond (if target survives). Additionally, a REIT target in a taxable acquisition often allows for tax efficient basis step ups that are not possible with a non-REIT target.
If the target company is a REIT that operates as an UPREIT, additional unique business and tax issues arise. The UPREIT structure was created to enable owners of real estate to contribute their appreciated real estate to the REIT's operating partnership in exchange for operating partnership units (OP units) deferring the recognition of tax gain. A subsequent taxable exchange of their OP units for buyer shares, cash or other taxable consideration in a taxable merger or take-private transaction, as well as a taxable disposition of their contributed property, will trigger contributors' deferred gain and thus also may trigger indemnity payments under any tax protection agreements then in force. The parties should carefully analyze the magnitude of any potential tax protection indemnity payments against the feasibility and costs (current and future) of alternative structures that might avoid such indemnity payments. Additionally, the forced taxable exchange of compensatory operating partnership units (or LTIPs) issued to operating partnership employees as profit interests may result in short-term capital gain treatment, rather than favorable long-term capital gain treatment, to the extent the transaction forces a taxable disposition of units before the applicable tax holding periods are satisfied. The board of a target UPREIT may also seek to offer tax deferred alternatives to its unitholders notwithstanding the absence or expiration of tax protection agreements. Please see our related overview "Unlocking the UPREIT Structure: OP Unit Transactions for REITS."
Structuring Considerations. Change of control analysis, transfer tax and reassessment considerations, spin-offs, asset dispositions and joint venture restructurings continue to be features of real estate take-private transactions. Analysis of the transfer rights and exit mechanisms will be a critical part of the diligence process if a target company includes a joint venture structure involving a public REIT or any indebtedness that will be assumed at closing. Exit rights in a joint venture typically include equity transfers through ROFOs or ROFRs, forced sale provisions, buy/sell mechanisms, and put or call rights. The timing of exit rights is often subject to lockout periods designed to preserve long-term alignment and investment stability and may be accelerated by the transaction. It is also important to assess whether the transactions contemplated by the exit mechanisms fall within safe harbor exceptions under relevant securities rules and the tax consequences of such transactions.
Activism. Activism campaigns continue to be prevalent and can often be the precursor to M&A. It is important for target boards to undertake activism preparedness and refresh that exercise periodically. Every board should have a detailed legal, internal communications, IR and general strategy plan. For private fund buyers, it is a common fund term to permit acquisition of public securities and toe-hold stakes only in instances where it is with a view to taking control of the target.
We expect the momentum of REIT and Real Estate M&A take-private transactions to continue for the remainder of 2025, fueled at least in part by the large amounts available in real estate opportunity fund dry powder. These transactions offer buyers attractive strategic opportunities but require meticulous preparation and cross-functional teams to successfully execute the deal and position the buyer for the long-term success of integrating its target.
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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.
