Key considerations a Private Equity firm would need to take into consideration include:
Founding shareholder/s:
Full exit
Large element of cash received on day one
Reduce risk - realise value on day one
Restrictive covenants for exiting shareholders
Aim to maximise day one cash through maximum valuation of the company
Maximum valuation - is a strategic trade sale going to achieve a greater value?
Partial exit
Dilution of shareholding and loss of control
Founder shareholder rights for good / bad leaver
De-risk through day one cash out and ring fenced value
Share of future upside through rolled over equity
Less cash out on day one due to element of value to be 'rolled over' going forward
Break down of rolled over value between loan notes and equity
Element of rolled over value ring fenced through loan notes or freezer shares
Management team:
Availability of other finance that has a lower cost
Management's confidence and belief of achieving the business plan
Distribution of sweet equity to new and existing members of the management team
Composition of new board and voting rights
Additions / gaps required to be filled to complete the management team
Appreciation of private equity restrictions:
good / bad leaver
covenants
swamping rights
drag rights
consent matters
Enough left in to incentivise the management team
Strength of second tier of management
New service agreements to be issued
Private equity transaction fees to be funded by Newco. Fee typically greater than £1 million
Less cash out than existing shareholders due to private equity house, working management to be incentivised to grow the value of the value of the business
Appointment and relationship with Investment Director and Chairman