Perhaps you’re a key member of a management team in a business that is up for sale, a public company seeking to go private, or a business owned by institutional investors looking to exit through a secondary buyout to another private equity investor. Whatever the reason, you’re part of a team that is going to attract the interest of private equity investors to fund a management buyout of the business. In all of these situations you will need to agree terms with the private equity investor and in doing so, there are a number of issues that you will need to consider.
These issues range across the legal relationship that Managers have with the successful institutional investor in relation to a Manager’s investment in the buyout and his employment, financial considerations like the balance between the amount a Manager is asked to invest in the buyout and the potential return on that investment, the amount of tax that a Manager pays on his investment and a Managers legal liability/risk during the investment.
In addition to these issues there are also more intangible matters to deal with and these may include understanding the approach that institutional investors take to their investee companies (which can vary significantly from PE house to PE House), how the debt your business takes on to fund the buyout will change the financial dynamics of your business, the changing relationship between members of the management team and the stresses and strains of going through a buyout. It is time consuming and can be an emotional rollercoaster.
Over the course of the next few articles I will be focusing in turn on some of these key issues and giving my view on what Managers should think about when dealing with them. The issues are quite consistent but the outcomes that are reached can vary significantly from buyout to buyout. Every deal is unique!
If you’re soon to be involved in a management buyout, I’m here to offer you professional advice. Just get in touch at …
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