United States: [Podcast]: Nuts And Bolts On A Management Buyout – Part 1

In this episode of The Proskauer Benefits Brief, partners Michael Album and Josh Miller discuss the nuts and bolts on a management buyout, and in particular, the issues and strategies that management needs to know. They examine the structure of a management buyout and discuss in detail the process behind the buy-out and how it unfolds for management. Be sure to tune in and listen for the latest insights and perspective on management buyouts in this first of a seven part series.

Listen to the podcast

Mike Album: Hello. Welcome to the Proskauer Benefits Brief – Nuts and Bolts on a Management Buyout, what management needs to know. I'm Mike Album and on today's episode I'm joined by Josh Miller and we're going to discuss the nuts and bolts of a management buyout, and in particular, what management needs to know.

Josh, why don't we start at the beginning and you can tell us a little bit about the structure of a management buyout.

Josh Miller: Sure. Thanks, Mike. A management buyout is a transaction where a financial sponsor, a private equity firm, together with the company's management team, purchases the assets and operations of the business that they manage. An MBO is typically financed through a combination of debt and equity derived from the buyers, lenders, and management roll over as an after-tax investment.

In an MBO the assets of the target are leveraged, but there is equity, and the management team is expected to rollover a portion of their existing equity, tax free where possible, as part of the transaction. Notably the LBO/MBO market is extremely hot right now. We're on pace for the busiest year by dollar since 2007 according to Dealogic.

Mike Album: So in addition to excessive fee claims you also mentioned claims alleging underperformance of investment funds. It seems like these claims would often go hand in hand with excessive fee claims because an investment is more likely to be challenged if its performance appears not to justify the fees being charged.

Josh Miller: Sure, and that's exactly right. Management wears multiple hats in these types of transactions. The key players in an MBO are as you mentioned are the seller, the company and its private equity sponsor or strategic owner. Then you have the buyer, a new private equity firm investing. Or it might be a strategic acquirer. And you have the senior management team, and we'll talk a little bit later in one of the other podcast series about who exactly who the management team should be and how that's determined. And you also have a lot of other players in the deal. You have the investment bankers and other financial advisers, the lenders and creditors, and each of those parties tends to have its own law firm, accounting firms, and outside consultants.

Mike Album: Josh, I think at this point we all should acknowledge that management is in a unique position because it wants to work with the selling PE firm to maximize the profits on the deal, in which management will also participate. At the same time it wants to negotiate a very acceptable and perhaps aggressive new arrangement with the buyer because they'll be running the company going forward and they want to realize more profits if this happens again.

So what has been your experience with how management fights through the stresses and strains of dealing with these multiple parties? Have you seen management be successful in this kind of situation?

Josh Miller: Absolutely. Management can be very successful. It's a careful navigation of those issues, but particularly with good counsel, both in connection with the sale on behalf of the company as well as counsel of management individually, they are able to navigate those issues, often very successfully.

Mike Album: Josh and I have done a lot of these. The way we can help the management team, frankly, is as a sounding board to run through various scenarios with them and also various possibilities so we can use our experience to help guide them about when to raise issues, how to raise issues, and how to work both on the seller's side as well as the buyer's side to reach a successful result.So there are legal issues and psychological, emotional, personal issues that go into building management team strategy to be a success. So, Josh, why don't we talk a little bit about how an MBO comes about?

Josh Miller: It's important to think about the rationale for the transaction from the various players' perspectives. Certainly the existing private equity sponsor might be winding down funds. They might find the public markets to be unfavorable. Maybe the MBO came out of an abandoned initial public offering process. And there might be a lot of industry consolidation where consolidation really is necessary as a means to compete with other peer groups. It might be a way to establish a platform for growth and to pivot in other industries or expand geographic footprints. In other cases, particularly over the last few years, the multiples and the sale prices might be so good that a selling sponsor just can't refuse a transaction and will exit earlier than anticipated.

Mike Album: That's right. And we should also add that while another PE firm may be a financial buyer, you could have a situation where a company is being acquired by a strategic buyer and that would raise a host of other concerns because the management team going into a strategic buyer, in other words another operating company and not a PE firm, would be faced with a lot of different challenges that would also have to be addressed. So I think the next step we want to do is talk a little bit about the terms and process of how an MBO starts to flow and that will be in our next podcast.

Josh Miller: Thank you for joining us on the Proskauer Benefits Brief. Stayed tuned for more insights, the latest hot topics in management buyouts, and executive compensation. Be sure to follow us on iTunes.

Listen to The Proskauer Benefits Brief

[Podcast]: Nuts And Bolts On A Management Buyout – Part 1

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions