This is where a company is acquired by its own management team ("Management Buy-Out") or by an outside management group ("Management Buy-In"), supported by either private equity investment and/or debt financing. It is usually achieved through a "Newco" set up by the management team to purchase the shares of the target company.
The transaction would normally start with Heads of Terms which might give exclusivity to the management for a defined period. Although existing management will have a good knowledge of the business, third party financiers generally require an extensive due diligence review. The seller may only be prepared to give limited warranties; therefore the financiers will take various warranties and covenants from the management.
A key feature of the deal will be structuring the consideration, with possible deferred payments and earn-outs. Also key will be procuring the consent of third parties to the change of control and assignments of contracts and leases in favour of the new company.
As well as the usual acquisition documents, terms will need to be agreed with the management's financiers, which invariably cover the preferred exit routes for private equity investors.
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