Acquisitions workshop 9

• 1. Sale to a trade purchaser
• 2. IPO on a recognised stock exchange
• 3. (Unsuccessful)Secondary buy-out (managers find a new private equity fund to replace themsleves)
• 4. (Unsuccesful) Winding up

• 1. Reserve the right to appoint a director/representative to attend board meetings
• 2. Hold a majority at board level in non-executive capacity
• 3. Reserved powers for major decisions

but DO NOT get involved in day-to-day running of the business

• 1. Investment paper evaluates viability of investment
• 2. Investment committee (senior fund managers analyse pitfalls and returns) approves in principle
• 3. Investment offer made and if successful terms negotiated and agreed
• 4. Final investment committee approval
• 5. Completion of investment

Set out in management agreedment entered into with the funds it manages

Where money is provided for start-up costs.

Usually taken by subscribing for shares in the company rather than taking it over

Management buy-out: private equity providor funds the existing management team of a company to enable it to buy out its business, usually by share acquisition or take-over

Management buy-in: team of managers who have not previously run the business are assembled for the purpose of making the acquisition

BIMBO (Buy-in management buy-out): Assembled management team includes existing managers and an external management team who have been brought in

Institutional buy-out: private equity fund sets up a company to acquire the business and gives management a small stake

P2P: Public to private management buy-out, takeover bid

This will result in a higher rate of return to them, the equity will make back a higher pencentage than they are paying on the bank loan.

From management to the funds.

They usually focus on the business plan, projections, due diligence reports.

the reason the private equity fund wants these is to ensure that the management team is fully motivated to provide forward-looking information

No.

• Share transfers
• 1. Prohibited transgers
• 2. Permitted transfers
• 3. Pre-emption
• 4. Leavers

• Share Rights
• 6. Class rights
• 7. Ratchets - this is a form of incentive that rewards the management team for a successful exit (downward ratchets also exist but are rarely used)
• 8. Voting rights

Drag-along/Tag-along

Good-leaver - market value at the date of transfer of the shares

Bad-leaver: lower of market value and issue price

To invest in unquoted securities for a five to ten year period with the intention of realising a high capital return on the sale of such securities

• 1. Potential internal rate of return for the fund on the investment
• 2. Arrangement for the realisation of the investment at the end of the agreed investment period
• 3. The skills and motivation of the management team that will be running the investment
• 4. Mechanism to ensure control over the investment if not successful

• 1. Senior debt provided by the bank
• 2. Mezzanine finance provided by the bank
• 3. Loan notes issued to investros
• 4. Shares issued to investors

Information memorandum

Bidder and advisors are allowed acces to a data room, target's management team and principal premises occupied by the target.

The bidders are given a period of time to refine their bids and gather more information

This is the bidder who is chosen after a first set of bids after circulation of an information memorandum and a second set of bids when allowed more detailed information.

The preferred bidder will usually be granted a period of exclusivity in which to conclude the transaction. Sometimes two bidders will be granted this and the seller may agree to pay costs of the unsuccessful party.

Where a private equity house takes on an underperforming listed company

• 1. Not to breach any duties of confidentiality that they owe to their current employer
• 2. Not to place themselves in breach of their service contracts