Under the Tent

A type of Merger & Acquisition transaction where the transaction is known by only a single buyer or select buyers.

Author: Won S Mejia Helfer
Won S Mejia Helfer
Won S Mejia Helfer
Masters in finance | Model | Microsoft office | English, Spanish, Italian | 3 Year experience | Banker
Reviewed By: Adin Lykken
Adin Lykken
Adin Lykken
Consulting | Private Equity

Currently, Adin is an associate at Berkshire Partners, an $16B middle-market private equity fund. Prior to joining Berkshire Partners, Adin worked for just over three years at The Boston Consulting Group as an associate and consultant and previously interned for the Federal Reserve Board and the U.S. Senate.

Adin graduated from Yale University, Magna Cum Claude, with a Bachelor of Arts Degree in Economics.

Last Updated:December 10, 2023

What Does “Under the Tent” Mean?

An under-the-tent deal is a type of Merger & Acquisition transaction. The company's seller does not disclose any information about the sale to the public but rather to one or a small group of select buyers (usually in Private Equity).

In the process, the seller can choose certain employees or the management team to be involved in the deal.

As other parties gain access to the information about the deal, they are led inside the “tent” where discussions are taking place. This is how the term “under-the-tent” is coined.

The seller chooses under-the-tent deals because they want their business to continue thriving and growing well into the future. Therefore, they care about who they partner with in a transition.

The sale rarely involves a Mergers & Acquisition advisor due to the seller's intention to keep the sale confidential.

Moreover, the seller may be the company owner that has decided to retire. Thus he may consider a management buyout MBO. The seller may also be a large conglomerate selling a division or non-core asset.

    Key Takeaways

    • An under-the-tent deal is a transaction known by only a single buyer or select buyers.
    • The deal will likely occur if company insiders are involved in the purchase. Additionally, they are backed by a financial buyer, usually a private equity firm.
    • The selling price is usually not maximized, and such deals are usually not represented by an M&A advisor.
    • The company may still incur fees even if an M&A advisor is not involved.
    • The sale is confidential; thus, it may prevent adverse events from impacting the business.

    How Does an Under the Tent Deal Work?

    Under-the-tent deals are not marketed in wide or controlled auctions. Instead, the seller presents the sale to financial buyers in a captive or proprietary way.

    The buyer may be insiders of the company that financial buyers back. The financial backers are more likely to take on MBO deals because the management team has familiarity with running the company.

    Under the Tent Deal Example

    The company's owner has reached a point where he is confident that his management team can operate the company without him. So now he is seeking retirement.

    He considers a management buyout deal, so his management team takes over the company. 

    He lets his management team “under-the-tent,” and now they are seeking financial buyers to back the team. They do not hire an M&A advisor to keep the nature of the deal secret.

    The seller has presented the buying opportunity to a private equity firm. The firm agrees to offer financial backing to the management team.

    The management team is familiar with running the company and would not need other parties to run it.

    Only the management team and the private equity firm were “under-the-tent” or aware of the seller’s intention to sell the company during the process.

    Reasons for Under the Tent Deals

    In an under-the-tent deal, the purpose is to keep the sale of a company secret from the public; only selected parties are involved in the deal. As a result, it rarely maximizes the buy price for the seller.

    Thus, the deal can reduce any negative influence or ripple effects an announcement of a public sale might bring to a company.

    For example, a public sale announcement may make employees nervous about their future in the company.

    Vendors and clients may reconsider their business relationship with the company ahead of the possibility of new management.

    On top of that, the cost would be required to market the sale through the M&A advisor. Thus, having a selected group involved in a deal can provide a smoother transaction and avoid the turmoil that might impact the company.

    Advantages and Disadvantages of Under the Tent Deal

    It allows the deal to have confidentiality and allows the company to run the business as if nothing was happening.

    Despite various benefits, there are a few disadvantages. So let’s take a look at the advantages and disadvantages of under-the-tent deals:

    Advantages are:

    • The cost of hiring a Mergers and acquisition advisor is usually avoided.
    • The sale status is confidential, which can potentially avoid influencing the business negatively.
    • It limits the expense and time required to complete the deal since an M&A advisor is not involved in the process.
    • The buyer gets a better buy price, unlike what the buyer may have gotten in an auction.

    Disadvantages are:

    • The sale does not take place in a wide or controlled auction, so it usually does not maximize the sale price for the seller.
    • The company and management may be first-timers on M&A deals which may pose challenges to the team.
    • Hiring an M&A advisor may provide better terms, mitigating risks, and higher valuation.
    • Management may need to familiarize themselves with the M&A process, which takes time away from operating the company.
    • Time and extra fees can still occur if management is involved in the M&A.

    Researched and authored by Won S. Mejia Helfer | LinkedIn

    Reviewed and edited by Parul GuptaLinkedIn

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