The Legal Process of a Management Buyout

Management Buyout Series Part 3: The Legal Process

What is a Management Buyout?

A management buyout (MBO) is a transaction where the core management team of a company work together to buy a company, or part of it.

Please refer to our blog on MBOs: the Pros and Cons and MBOs: Considerations before, during and after an MBO 

This guide sets out the likely legal documents required on an MBO assuming that a single newco buying vehicle is used by the MBO team and external funding is required.

Initial Documents

Heads of Terms between seller and buyer for the acquisition

Heads of Terms with any equity investor

Bank Term Sheet

Confidentiality Agreement

Due Diligence Enquiries

Responses to Due Diligence (and supporting documents)

Management Questionnaires for the investors

Newco incorporation

Board Minutes

Allotment of Shares

Appointments

Share Certificates

Shareholders Agreement between MBO team

Articles of association

Acquisition Documents

Sale & Purchase Agreement (including a Tax Covenant)

Disclosure Letter (and Bundle)

Stock Transfer Forms

Share Certificates

Powers of Attorney

Deeds of Release / Discharge of Indebtedness

Funding Documents

Investment Agreement (if an equity investor)

New Articles

Loan Notes

Security in favour of the investor (debentures and guarantees)

Investor disclosure letter

Directors Service Contracts

Non-Executive Appointments

Vendor Loan Notes

Vendor Debenture (or other security)

Bank Facility Agreement

Bank guarantees and debentures

Intercreditor Deed

Drawdown request

Completion Documents

For each of the Buyer (newco) and the target company, some or all of the following:

Board Minutes

Resolutions of Shareholders

Application for shares

Share certificates

Loan Note Certificates

Appointment Letters and forms

Resignation Letters and forms

Settlement Agreements

Forms to register security

Forms to deal with allotment of shares and statement of capital

Other Ancillary Documents that may be required:

Keyman insurance

Tax elections

Press release

Completion monies undertakings

It can be seen from the above that an MBO is far from simple in terms of legal documentation, particularly where third party funding is required by the MBO team.  However, MBOs remain an attractive option for both business owners wishing to exit and managers wishing to step up into an ownership role.

If you have any questions about the above, please get in touch with a member of the MLP Law Corporate team by emailing corporate@mlplaw.co.uk or calling 0161 926 9969.