In private equity deals, the most important component is management and yet, all too often, advice for management is placed well down the priority ladder. Legal advice is generally taken but only late in the process when the ability for management to influence the process and maximise their position is severely limited.
We have therefore created a dedicated team to advise management on private equity transactions. We encourage our clients to engage with us as early in the process as possible and preferably well in advance of any process being contemplated. This enables management to maximise their position. In any private equity transaction, a good relationship between the private equity house and the management team is essential, and we recognise the importance in ensuring that any negotiation is conducted in a cooperative and non-confrontational manner.
Our experience ranges from modest transactions to transactions with values of well over £700m.
In primary private equity deals, our advice covers the structuring of the transaction to maximise the management’s stake in the buy out vehicle whilst ensuring that leverage is kept to sensible levels. We ensure that the legal documentation remains balanced and that management are not exposed to unreasonable or non market terms including in relation to warranties and good/bad leaver and anti dilution provisions. We also advise on appropriate employment terms.
On secondary deals, where management are also sellers of the target company alongside the existing private equity house, there can be an inherent conflict. On the one hand, there is the selling private equity house who won’t expect to give warranties and will be solely interested in maximising the sale proceeds. On the other hand, there is the management who are expected to give the sale warranties and whilst they will also expect to maximise the sale price, they will also be interested in ensuring that the transaction is acceptable to them as investors in the buying vehicle. As advisers to the management team, we provide an overseeing role to ensure that the principal advisers to the sale (who will generally be appointed by and owe allegiance to the private equity house), take proper account of the management’s interests.
We also provide advice to management on IPOs. Whilst the advisers to the Company traditionally provide advice to management, where a private equity shareholder is involved, there are areas where independent advice to management can be crucial including in relation to warranties and other obligations under any Underwriting Agreement, share lock ups and employment terms.
We are one of the founding members of Lighthouse Management Advisers, a strategic alliance between ourselves and a team of senior corporate finance advisers and former leaders in private equity houses. Lighthouse was formed to advise primarily on larger secondary private equity transactions but is available as a resource to assist on transactions of all sizes should its skills be required. For more details on Lighthouse, please click here.