MBO, MBI & Venture Capital
Management Buy Out (MBO) - the purchase of a business by its own management team from the owners, usually with the assistance of financiers.
The buyers may get few warranties (because the buyers are the business’ managers and will understand of the business that they are purchasing).
Management Buy-In (MBI) - the purchase of a business by an external management team who believes that their industry knowledge and experience will ensure the success of the acquisition.
The MBI team may undertake comprehensive due diligence of the business, even though they may be familiar with the operations of the company (for example because it is a competitor of, or is complimentary to, their existing business).
Venture Capital / Private Equity Finance
From the perspective of venture capital financiers and private equity investors (VC’s) legal risk must be limited. For quite modest investments, the VC will often require almost full legal indemnity against risks in the investment.
VC’s typically require warranties to be given by the MBI/MBO team over and above those given by the sellers. VC’s may have in-depth sector knowledge and may seek to introduce a representative onto the target company’s board or into its executive structure.
VC’s typically require clear exit processes leaving the VC with a healthy return on investment and the MBI/MBO team with a healthy and financially successful business. A failure to deliver on the VC’s expectations may erode the value of the MBO/MBI team’s investment.
How we can help
MBO/MBI and VC investments can create legally complicated structures involving deferred consideration, loan and equity investment from third party financiers, inter-creditor agreements, differentiated share classes and subordination and priority of loans.
We advise on all aspects of MBO’s, MBI’s and Venture Capital / Private Equity investment, including:
- Share purchase agreements
- Due diligence, warranties and disclosures
- Security structures
- Intercreditor arrangements
- Capital and debt restructuring