Supplier to Network rail sold to management for just under £2m

The ORJ corporate team headed up by Lorraine Smith, Partner, have recently completed the £1.7m management buy out of a local environmental services business who is a key supplier to Network Rail.

Lorraine commented on the transaction “this was a particularly complicated transaction. The vendor had received external offers for the Company but was committed to the existing management team, whose presence he felt was key to the ongoing success of the business. The buyers could not obtain a large amount of external funding so a series of options were put in place which allowed the Buyers to purchase the Company in tranches, this allowed the Vendor to crystallise the value of the company, whilst extracting the purchase monies in a tax efficient way.

Whilst it is usual in a buy out to transfer all of the shares on completion, in this case the use of options also meant that our client was still entitled to dividends for such period as he held the shares”.

ORJ managed to negotiate favourable terms for the Vendor that allowed him equal voting rights on the board until such time as all of his shares had been repurchased. A shareholders agreement also reserved key rights of veto for so long as he held shares.

Lorraine said “in any management buy out scenario where there is a prolonged period for deferred consideration it is important to find a balance between allowing the incoming management scope to run the business efficiently and allowing the Vendor such control as is required to protect the value of the company until such time as the options are exercised. I think in this case we achieved that.”

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