United States: [Podcast]: Nuts And Bolts On A Management Buyout (Part 2 Of 7)

In this episode of The Proskauer Benefits Brief, partners Michael Album and Josh Miller return to discuss the nuts and bolts on a management buyout. As part of their discussion they highlight the different types of transactions (single bidder vs. multi-bidder) and the various tasks that management faces in handling the process and as a first step inventorying their own compensation arrangements. Be sure to tune in and listen for the latest insights and perspective on management buyouts in this second of a seven part series.

Listen to the podcast

Mike Album: Hello. Welcome to the Proskauer Benefits Brief. This is a presentation on the nuts and bolts of a management buyout; what management needs to know, and today I'm joined by Josh Miller. I'm Mike Album. We're both partners here at Proskauer, and we're going to discuss the second part of our series on the nuts and bolts of a management buyout. We're going to go focus today on the terms and process of the transaction. So the transaction; obviously the transaction starts when the PE sponsor thinks that the value is right and the time is right to have different bidders look at the company and consider buying the company. And the process can include one on one negotiations, or it can include an auction process.

Josh, talk a little about how, if there's a one on one process taking place, what are the elements of that, such as letters of intent, things like that? Then we can move to the auction process.

Josh Miller: Sure. Often you'll see a term sheet, or a letter of intent, usually not binding, between management and the potential buyer. It'll outline key terms of the rollover, and the equity structure from and after the investment. And typically the letter will lay out other terms and conditions for management. Those would include the incentive equity pool, terms and conditions of employment, treatment of retention bonuses, governance rights, and so forth. We're going to get into some of the more specific terms that we would typically see in such a terms sheet, in a later podcast in this series.

Mike Album: Right, so I think what we'll call the one on one process approach may result from personal contacts management has, perhaps with other PE firms, or a PE firm selling to a PE firm may have contacts at the sponsor level. The key is generally it's a one on one process, and the auction process in contrast is a multi-ringed circus, frankly. It can have three, four, five PE firms, often being run by investment banks, submitting all types of documentation. Often at the same time, they can have different timetables. The auction process is a real challenge for management. And Josh, why don't you talk about some of the things that management has to balance in an auction process, because it's very different from a one on one negotiation.

Josh Miller: As you said, there are multiple bids, and the bidders are submitting various types of documentation, from a letter of intent or general term sheet, to full markups of a purchase agreement, fund documents, equity compensation and employment terms sheets for management. Really as much as they're willing to prepare, in some cases, sellers will like to see as much detail as possible. And in other cases, they're willing to move forward on a more general, high-level term sheet, particularly where the price is right.

Mike Album: Right. So the challenge for management in these situations; one, the prospective bidders on the company want to learn as much as they can about the company, as fast as they can, so there will be a document room set up, management is going to have to spend time getting all the documents together, and overseeing production of all the documentation that the buyer's going to need to do for diligence. At the same time, there will have been prepared perhaps, a merger agreement or the transaction document that then will be put out to all the parties in the auction, and they're going to look at that, and they're going to mark it up. So management and the outside lawyers are going to have to be focusing on comments that are coming in, working with the investment bankers, and corporate counsel, the counsel that is to the company and the sponsors, to determine whether the legal changes that are being made are consistent with the way they want to sell the company.

And now finally we get to the point Josh, where management starts to say, hey, what about my own situation? What about my own economics, what about my future here, after the closing? How do I and when do I start to address those within the context of this very busy activity that's taking place?

Josh Miller: Right. That's a critical question for management. Typically, management's going to want to retain and engage outside counsel, as soon as possible. Now management counsel can stay behind the scenes, do its work with management, without engaging bidders, or their counsel, and surface at the right time. This gives management an opportunity to be out in front, and address key terms, and set management's expectations of positions, early. The attorneys also can help manage the seller in the exit. There might be issues that still need to be addressed as part of the exit, and that can include anything from a negotiation of transaction bonuses, the seller making good on promises or expectations that the management team had, or allocating equity compensation that had been reserved but never issued.

Mike Album: All right. Let me just jump in. I just want to make one observation. We as counsel to management, one of the first threshold issues we deal with is who is our client, who is management. And that goes back to which group are we going to be advising, and that's again a threshold issue for the CEO and his team. Usually, we have represented a team. That team has consisted of the CEO, a CFO, a GC, perhaps a senior marketing person. But the people we represent, the team generally, it's not a large broad-base team, and the decisions we make often have ramifications for other executives, lower down the food chain. But the important point is our group will be a smaller group who we are advising, and they will be the ones who have the ears of the sponsors selling, as well as the buyers negotiating. So that first threshold issue is to figure out who your management group is that your outside counsel will be representing.

Josh Miller: That's right. The broader the team, certainly there are issues that come about. Internal conflicts, dealing with potential holdouts, individuals who won't agree to roll over, enter into new contracts such as non competes or other restrictive covenants. There might be other people, particularly in a strategic transaction, whose positions are redundant or will be eliminated. In that case, the team is going to have to deal with those conflict issues. It could be challenging for management counsel.

Mike Album: It's a challenge. Josh is right, but we try to be as transparent as we can, and we try to deal with the core members of our team in a strategic way. That goes back to the issue we raised earlier, in one of the earlier pod casts. Which is the earlier we can get involved, the better, so we can work through these types of time lines, and we can work with the senior management team to understand a range of things. I mean even something as simple as, what is their own inventory of compensation arrangements now? That is a very critical issue, to determine what they now have, so they can understand their tax treatment when payment comes in on what they have, as well as structuring their future arrangements with the buyer. So again, timing is critical, and getting your outside counsel involved with the management team early, is critical.

Josh Miller: As we talked about earlier, management can't do it all. They have to manage the day to day operation of business in the ordinary course. They have to tend to matters related to the transaction itself; the documentation, the financing, the communications, road shows, and so forth. And of course their individual compensation. And that can't be something that distracts from the deal, and their operational responsibilities, which is why having competent outside counsel is really so critical. It keeps the ball moving, you can leverage their expertise, and focus on the key management responsibilities as they apply to the company itself.

Mike Album: We'll close this podcast with this, the practical observation. Who pays the fees of management's outside counsel? That's a matter frankly that can vary from deal to deal. Often the case is that the corporation will pay, it'll come out of the corporations general assets, as part of the closing. Whether that covers all the fees or not, and whether management is also putting some money in the pot to cover out-side fees is another matter, but there are a lot of creative ways to structure the fees incurred by management, and management should not expect to cover it all by them-selves, out of their own pocket.

So that'll end this podcast, and this again is part of a series, so we'll be coming back with another podcast shortly. Thank you for joining the Proskauer Benefits Brief, stay tuned for more insights on the latest hot topics in management buyouts and executive comp, in our subsequent pod casts. And be sure to follow us on iTunes. Thank you.

Listen to The Proskauer Benefits Brief

[Podcast]: Nuts And Bolts On A Management Buyout (Part 2 Of 7)

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.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please 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.


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.


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