The following Corporate guidance note provides comprehensive and up to date legal information covering:

  • Buyouts
  • Background to buyouts
  • Commencing the sale process
  • Due diligence
  • Consents and approvals
  • Structuring buyouts
  • Transaction documents

Buyout is a generic term usually used to describe the acquisition by a management team, backed with equity finance from a private equity investor, of an established business that has a proven revenue stream and generates positive cashflow.

Background to buyouts

Why sell?

The decision by a seller to dispose of a company or business may arise for a variety of reasons, including:

  1. strategic reasons, such as a corporate group selling:

    1. a non-core business, division or company to allow the remainder of the group to concentrate on its core activity, or

    2. part of its business as a pre-emptive or defensive action against a potential hostile takeover bid

  2. to raise funds to ease financial pressures elsewhere in the seller’s business

  3. to release funds for investment elsewhere, especially in the case of individual sellers or exiting venture capital investors

  4. the retirement or death of current owners

  5. in distressed circumstances where solvency is an issue (including in a liquidation), and

  6. an exit by an existing private equity investor

Often sellers prefer to dispose of the company or business at auction rather than negotiate with a single buyer from the outset. This creates a competitive process and has the advantage for the seller of increasing the chance of maximising the sale price and completing the sale in a shorter period.

In some cases (especially in larger