The one common goal shared by most shareholders is to maximise the value realised from a disposal process. However, it may be too early for an entrepreneur to sell outright with the likely outcome being to also retire from the business, there may be a number of owners with different exit horizons, or it may not be possible to optimise the outcome in a single transaction now. This might include for example, the business currently being overly reliant on a significant shareholder with no management succession plan depressing valuation.
Whilst private equity and other institutional investors had historically been nervous about providing funds for entrepreneurs to de-risk questioning their motivations, there has been a significant shift in thinking. There is now strong empirical evidence that management teams that de-risk actually over perform compared to peer businesses typically as a result of being able to take a longer term view rather than protecting short term performance. Accordingly, there is strong appetite from private equity investors to provide funds to allow a partial sale of a business (perhaps coupled with investment for growth or acquisition) and they will work with the management team, typically over a 3-5 year period, to grow the value of the business before seeking a full exit for everyone. Depending on the precise deal structure, it may also be possible to structure a partial exit tax efficiently and benefit for 10% tax under Entrepreneurs Relief.
Accordingly, partial exits may be an attractive alternative to a full disposal either to a trade or institutional purchaser.
Our corporate finance team have advised on a significant number of partial exits to private equity and we will:
- Assess valuation potential and the viability of a transaction;
- Identify sources of funding;
- Negotiating funding terms included a detailed management term sheet with private equity investors;
- Assist in deal preparation including detailed forecasts, Information Memorandum, Management Presentation and electronic dataroom;
- Optimise tax aspects of the transaction;
- Locked Box and Completion Account preparation and negotiations;
- Review of legal documentation and close liaison with the chosen lawyers providing commercial, financial and tax input;
- Project management to completion; and
- Earn-out accounts negotiations
We have strong relationships with the leading private equity houses and debt providers and, as a result, have a deep understanding of not only their requirements to achieve a successful completion but also how to secure the best terms in the current market.
All our transactions are partner led and our hands-on approach seeks to minimise management disruption during a part disposal process.