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Management Buy-Out Structuring

Management Buy-Outs

A management buy-out (MBO) is the acquisition of a business by its existing management team, typically facilitated by a combination of equity investment from the management team (funded by a combination of personal savings, rolled over equity from the previous ownership, or deferred consideration), debt finance from banks or alternative lenders, and in many cases equity finance from a private equity or venture capital investor who takes a stake alongside the management team. The MBO transaction requires the formation of a new acquisition company (Newco) that acquires the shares of the target business from the existing shareholders. The management team holds equity in the Newco alongside the financial investors, aligning their economic interests with those of the investors through the investment holding period.

The structuring of management equity in an MBO is critical to aligning the interests of the management team with those of the financial investors and to ensuring that the equity incentive is sufficient to retain and motivate key management personnel throughout the holding period. Common structures include ordinary shares held by the management team alongside the financial investor (with management shares participating in returns above an agreed hurdle rate), sweet equity arrangements where management holds a small number of shares at nominal value that participate in returns above the hurdle, and management incentive plan shares that vest over time based on performance and continued employment. Neptune Fiduciaries Group advises on the corporate structuring of MBO transactions from Newco formation through to the ultimate exit.

Newco Acquisition Vehicle Formation

We advise on the formation of a Newco acquisition vehicle in an appropriate jurisdiction, structured to facilitate both the MBO transaction and the anticipated future exit route (whether trade sale, secondary buyout, or IPO) in a tax efficient and commercially practical manner.

Management Equity Incentive Structuring

We advise on the structuring of management equity including ordinary shares, sweet equity, growth shares, and management incentive plan arrangements designed to align management incentives with investor return objectives and vest appropriately over the investment holding period.

Debt and Mezzanine Finance Arrangements

We advise on the corporate structuring required to accommodate senior bank debt, mezzanine debt, and payment in kind (PIK) finance in the MBO structure, including the provision of appropriate security packages and intercreditor arrangements between the different tranches of debt.

Warranty and Indemnity Insurance

We assist in coordinating warranty and indemnity (W&I) insurance arrangements for MBO transactions, which provide the management team and financial investors with protection against unknown or undisclosed liabilities in the acquired business that would otherwise fall on the buyer under the sale and purchase agreement.

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Contact Neptune Fiduciaries Group via info@neptunecorporate.com or visit our Contact Us page.

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