Management buyout case studies

Management buyout transactions often involve complex structures. Using our experience, we work with the management team to streamline the process and effect completion with minimum cost. An MBO is different to the majority of corporate transactions, and thus experience is key.

Example 1 - Management buyout of a global haulage company

We acted for a well known institutional lender on its financing of a management buyout in connection with a global haulage company. Under the terms of the transaction, part of the purchase price paid to the selling shareholders was being deferred. This was by way of the issuing of a loan note.

As some of the purchase price was deferred, we needed to ensure that the lender’s interest was protected following completion of the sale.

In order to achieve this, we drafted legal charges and a debenture. This was to provide security against certain properties of the business and the business itself should the borrower be unable to make a payment. We also ensured that following completion, the lender’s funds were repaid to the lender before the loan note holders. We negotiated the terms of the loan note and drafted an inter-creditor deed. This set out the order of repayment of loans.

The inter-creditor deed was drafted to ensure that the lender was a preferred creditor and that, coupled with the security documents, provided sufficient comfort for the lender to release funds for the management buyout to take place.

Example 2 - Management buyout of a fintech company

We acted for the selling shareholders of a challenger bank following its huge growth in its first few years trading. One of the keys to ensuring a swift and smooth transaction is to make certain that the due diligence process is managed effectively and sufficiently for the type of transaction.

Often, a benefit for selling shareholders in a management buyout is that the provision of due diligence and certain buyer protections often found in the key transaction documents can be reduced. This limits both time and risk of the selling shareholders. The reason for the reduction is because the buying shareholders have a greater knowledge of what they are buying. Therefore, they are unlikely to require as much information or protection about the company they are buying.

Surprisingly, in this instance the buyers took the unusual stance of asking for vast amounts of information that they most likely already had. Furthermore, our clients were also asked to provide a full suite of warranties typically found in a share purchase in which the buyers were not already part of the management team of the target. This increased the risk profile of the transaction for our clients.

Using our extensive knowledge of management buyouts and shrewd negotiation, our lawyers successfully reduced the amount of due diligence that our clients were being asked to provide. We also reduced the risk exposure faced by our clients as we successfully negotiated reduced  warranties. That, coupled with us negotiating a reduced cap on our clients’ liability should there be a breach of any warranties resulted in a very happy client!

Example 3 - MBO with different classes of shares

Acting for the management team of an invoice financier on its MBO in conjunction with a private equity fund, we created numerous classes of shares in NewCo. This ensured that the management team held shares with different rights to those shares held by the fund.