In early March 2025, the staff of the Division of Corporation Finance of the Securities and Exchange Commission expanded and updated guidance with potential implications for the private equity industry. These changes include expanded accommodations for issuers to submit draft registration statements for nonpublic review, greater flexibility in written consents and “lock-up” agreements in M&A transactions, and new clarifications to materiality thresholds in tender offers.

A summary of each of these key changes, along with takeaways for clients in the private equity industry, are provided below. More detailed information can be found in our Debrief on the registration statement review process and our Update on the new Compliance and Disclosure Interpretations (C&DIs) regarding sign-and-consent structures and tender offers.

Broadened Accommodations for Draft Registration Statement Review.

Enhanced Accommodations. Beginning in 2012, the SEC permitted confidential submission and review of draft registration statements for initial public offerings of Emerging Growth Companies (EGCs). The SEC then expanded this process to include all IPO issuers, as well as, in limited circumstances, other issuers. On March 3, 2025, the SEC further expanded this guidance through the following key changes:

• Expanding the initial registration statements eligible. The SEC will now permit issuers to submit for nonpublic review initial registration statements on Form 10, 20-F or 40-F under Exchange Act Section 12(g).
• Removing time constraints on review of subsequent draft registration statements. The SEC has removed the 12-month time limit and will now permit nonpublic review of subsequent draft registration statements for Securities Act offerings or registration of securities under either Section 12(b) or Section 12(g) of the Exchange Act regardless of when the issuer filed an initial registration statement. Issuers submitting subsequent draft registration statements for nonpublic review must publicly file their registration statement and nonpublic draft submission at least two days preceding the requested effective time and date. The SEC will continue to limit its nonpublic review of subsequent draft registration statements to the initial submission and not to any amendments.
• Expanding review to include de-SPAC transactions. The SEC will allow issuers to submit for nonpublic review registration statements in connection with de-SPAC transactions as if such registration statements were an initial Securities Act registration statement where the SPAC is the surviving entity, provided the co-registrant target would otherwise be independently eligible to submit a draft registration statement.
• Special considerations for Foreign Private Issuers. In addition to their options under the new accommodations, Foreign Private Issuers may, if they so qualify, choose to follow the procedures available to EGCs, or they can follow the alternative guidance issued in the SEC’s 2012 statement.
• Allowing issuers to omit underwriter(s) from initial draft registration statements. The SEC will permit issuers to omit the underwriter name(s) from initial registration statements where such information would otherwise be required, provided such information is later supplied in subsequent submissions and public filings.

The SEC’s expanded review process allows more companies to benefit from confidentiality during their initial registration review process, offering companies greater agency over their messaging to the market and greater ability to control the timing of their transactions based on market conditions. These changes provide flexibility benefitting private equity sponsors in connection with liquidity events, including follow-on sales after an IPO and public exits via a de-SPAC business combination transaction.

Expanded Flexibility for M&A Sign-and-Consent Structures and Lock-Up Agreements.

Background

In business combination transactions involving target companies with a majority stockholder, an acquiror often requests that such stockholder delivers a written consent immediately after the signing of the transaction agreement. This “sign-and-consent” structure eliminates the need for a stockholder meeting to approve the transaction, accelerates the closing timeline and enhances acquiror’s deal certainty. Absent a written consent, acquirors will seek voting agreements where management and principal security holders commit to vote in favor of the transaction at the stockholders meeting, referred to as “lock-up agreements.”

Though not enforced in recent years, the SEC historically objected to sign-and-consent structures in transactions where the target company stockholders were to receive public (i.e., unrestricted) stock of the acquiring company as consideration.

Updated Guidance

Sign-and-consent structures

The SEC now formally permits registration of offers and sales of the acquiring company’s securities on Form S-4 (or Form F-4) when a sign-and-consent structure has been implemented, provided: (1) the insiders of the target company, who provided written consents, are offered and sold acquiring company securities only in an offering validly exempt from the Securities Act, and (2) the registered securities (on either Form S-4 or F-4) are offered and sold only to security holders who did not sign on to such written consent.

This means that the SEC staff will allow stock-for-stock mergers that involve a combination of exempt offerings for target company insiders who executed consents in favor of the transaction and a registered offering for other target company stockholders. The SEC’s updated guidance offers additional flexibility for companies with significant stockholders (such as a private equity sponsor) to structure their business combination transactions to avail themselves of the benefits of a sign-and-consent arrangement.

Lock-up agreements

The SEC also clarifies its guidance on transactions involving voting agreements with significant stockholders in lieu of a sign-and-consent structure. Four conditions must be satisfied to ensure the non-objection of SEC staff to the registration of offers and sales when significant stockholders (such as a private equity sponsor) sign lock-up agreements:

• the lock-up agreement involves only target company insiders, including executive officers, directors, affiliates, founders and their family members and holders of 5% or more of the voting equity securities of the target company;
• those signing the lock-up agreement own, in the aggregate, less than 100% of the target company’s voting equity securities;
• votes are solicited from the target company’s stockholders who have not signed lock-up agreements if required to approve the transaction under state or foreign law; and
• the acquiring company must deliver a prospectus to all target company security holders entitled to vote on the transaction.

New Guidance on Materiality Thresholds in Tender Offers.

New Guidance

The SEC also provided new guidance relating to tender offers, relevant to private equity sponsors and their portfolio companies engaging in liability management exercises or take-private transactions structured as a tender offer. The SEC’s new Compliance and Disclosure Interpretations (C&DIs) relating to tender offers provide greater insight into how the SEC views materiality thresholds, thus removing certain ambiguities regarding tender offer disclosures and allowing companies and private equity sponsors to more thoughtfully contract with lenders. The SEC’s relaxing of the five-business day requirement for all-cash tender offers allows companies and private equity sponsors additional flexibility and certainty in structuring offers, including in the take-private context.

We summarize the new C&DIs as follows:

• Question 101.17: The SEC acknowledges that its “general rule” requiring all-cash tender offers remain open at least five business days following the initial disclosure date of material changes may not always be practical. A shorter time frame may be acceptable, provided security holders have sufficient time to consider the material information disclosed when contemplating whether to tender, withdraw, sell or hold. The relative materiality of the information matters.
• Question 101.18: When an offeror announces a partly financed or unfinanced tender offer subject to Regulation 14D and discloses the lack of sufficient funds in its offer, the offeror’s subsequent securing of funding is a material change requiring prompt disclosure and dissemination of updated disclosure. Offerors may consider extending the offer to allow shareholders adequate time to consider the change. This C&DI applies to both third-party tender offers and issuer tender offers.
• Question 101.19: The SEC clarifies that binding commitment letters from lenders constitute a fully financed transaction. However, “highly confident” letters from lenders are not fully financed.
• Question 101.20: Where an offeror discloses that it has received a binding commitment letter from a lender but also discloses that it may purchase the securities via an alternative funding source, if the offeror does utilize the alternative funding (including cash), the substitution does not constitute a material change. The offeror should still consider whether the offer materials should be updated to reflect the change.
• Question 101.21: This C&DI applies to an all-cash tender offer subject to Regulation 14D, where the offeror obtains a binding commitment letter from a lender but conditions the purchase of the tendered shares on receiving the funds from the lender. If the lender provides the funds—or if the lender does not provide the funds, but the offeror waives the condition and utilizes alternative funding—there is no material change. However, if the lender does not fulfill its obligation, but the offeror waives the funding condition without any alternative funding source, the offeror’s waiver is a material change requiring prompt disclosure. Further, offerors should consider whether they can satisfy the prompt payment requirement imposed by Rule 14e-1(c). This C&DI applies to third-party tender offers, as well as issuer tender offers subject to Rule 13e-4 and its comparable requirements.

Private Equity Report Spring 2025, Vol 25, No 1