Case study - structuring a share sale exit transaction

Background - sale of shares in care home business

Gannons was approached by a client in the early stages of a management buyout, following his decision to exit a company within a care home development group.

At the point of instruction, the remaining shareholder had agreed to purchase our client’s shares for around £7 million. We were asked to oversee completion of the MBO and review the proposed documentation.

A third-party equity investor had been funding the buyout, but the shareholders were considering restructuring the company. Our client therefore sought advice on suitable alternative arrangements.

Key issues

The remaining shareholder initially proposed obtaining a loan to fund the purchase. Once in place, this would provide an initial payment to our client, with the balance deferred. The deferred payments would be linked to the sale of three care home developments and reflect the proceeds of those sales.

Our client was concerned about the security of the deferred consideration once he had ceased to be connected with the company. He therefore asked us to explore alternative payment arrangements that would protect his entitlement to the sale proceeds.

Trust Deed for deferred payment

Gannons reviewed the group structure and proposed transaction and recommended that the shareholders enter into a trust deed. Under the proposed arrangement, the properties would be held by the remaining shareholder, with provisions requiring the proceeds of their sale to be held on trust for our client.

This arrangement protected 50% of the agreed value of our client’s shares that remained payable under the original deferred payment plan, safeguarding his financial interests.

Agreement to reinvest part of sale proceeds

As a final step, our client agreed to reinvest part of the consideration received into the group. This funding would help the company complete its development projects and progress towards selling the properties covered by the trust deed, supporting the commercial objectives of all parties.

Our role

Our primary role was to advise our client on how to structure the share sale to protect his interests. We negotiated with the company and remaining shareholder to secure an exit arrangement that addressed the needs of all parties.

Our corporate team reviewed the group structure and proposed share purchase documentation. By analysing the strengths and weaknesses of our client’s position, we identified an alternative arrangement that gained the support of those involved.

Drawing on our restructuring expertise, we developed a commercially viable solution that balanced our client’s need for security with the company’s cash-flow requirements. We proposed a trust deed alongside the partial reinvestment of the sale proceeds.

Gannons drafted the trust deed to ensure that the exiting and remaining shareholders’ interests were clearly defined and protected. As a result, our client successfully negotiated his exit with greater security over the outstanding consideration.