Case study - structuring a share sale exit transaction

Background - sale of shares in care home business

Gannons was approached by a client who was in the early stages of a management buyout, following his decision to exit the company, which formed part of a care home development group.

At the point of instruction, the existing shareholder had agreed to purchase our client’s shares at a value of around £7m, and we were asked to supervise the completion of the MBO and to review the proposed documentation.

A third investor, an equity company, had been funding the buyout, but the shareholders were seeking to restructure the company and our client asked for our advice on suitable alternative structures.

Key issues

Initially, the remaining shareholder proposed obtaining a loan for the purchase funds. Once this loan was in place, there would be an initial payment to our client, with the balance being met by a deferred payment. The deferred payments were tied to the sale of three care home developments and would be reflective of the value of these sales.

Our client felt somewhat at risk and wanted to ensure that he would benefit from the proceeds of the sales once he had ceased to be connected to the company. He therefore requested that we explore different payment options.

Trust Deed for deferred payment

Gannons considered the group structure and proposed deal and advised that the most beneficial option would be for the shareholders to enter into a trust deed. Under the terms of the trust, the properties would be held by the remaining shareholder. Upon their sale, the trust deed contained provisions for the proceeds to be held on trust for our client.

This meant that 50% of the agreed value of our client’s shares owed under the original deferred payment plan was protected, thus protecting our client’s financial interests.

Agreement to reinvest part of sale proceeds

As a final step, our client agreed to re-invest part of the consideration that he received back into the Group. This money would ensure that the company could complete the development projects, and progress towards the sale of the property governed by the trust deed, consequently advancing the commercial requirements of all parties.

Our role

Our primary role was to advise our client on how the share sale could be structured to best protect his interests. The firm negotiated with the company and remaining shareholder with the objective of obtaining the most beneficial exit option for all parties involved.

Our corporate team reviewed the current Group structure and share purchase documentation.  Our team’s analysis of the strengths and weakness of his position led to our suggestion of an alternative arrangement which gained the support of all involved.

Notably, we used our combined restructuring expertise to provide a creative and commercially viable solution to our client. To engage in successful negotiation, we recognised that we had to cater to the needs of all parties involved. Balancing the security requirements and the potential cash-flow concerns of the deal, we proposed that the parties enter into a trust deed with a partial re-investment of funds.

Gannons drafted the deed of trust, being careful to ensure that the exiting and remaining shareholders’ interests remained equally distinct and protected. As a result, our client was able to successfully negotiate the terms of his exit with the assurance that the trust deed would safeguard the remaining balance of the transaction.