A venture-backed business will eventually need to provide an exit for its investors and perhaps also its founders.
This so-called "liquidity event" will usually take one of three possible forms: a sale to a trade buyer, sale to management team (for example, by way of a management buy-out (MBO) backed by a private equity fund) or an initial public offering (IPO), also known as a public listing. Our experienced Corporate Transactions team will be able to guide you through this crucial step in your businesses development.
Sale to a trade buyer
This will involve a sale of the entire issued share capital to a larger corporate operating in your sector so that your company becomes a subsidiary in a larger group. You will most likely engage corporate finance advisers to find the buyer and will take their advice on the valuation. You will need legal advisers to guide you through the due diligence process and negotiate the sale documents. When selling a venture-backed business, it is particularly important that the requirements of the different seller groups are catered for. Each of the founders, investors, manager shareholders and option holders will have different requirements depending on how involved they are in the running of the business, whether they will continue to work in the business after the sale and their own personal tax position. Negotiations can be fraught and it is important that your legal advice takes all the sensitivities into account.
This form of exit allows investors and founders to sell their shares and handover the running of the business to the next-generation management team backed by a private equity fund. The management team will usually rollover their shareholding into the new company and so be able to share in, hopefully, the future growth of the company under a new ownership structure. An MBO will involve all the features of a sale to a third-party buyer but the management team will also need advice on the terms of the private equity investment and any debt financing. Once again, each group will have competing requirements and it is crucial that your legal advisers are experienced in these types of transactions.
Initial public offering
An IPO involves the listing of your company's shares on a public exchange so that they can be publicly traded and your business can have access to the capital raising potential of the public markets. The IPO process itself usually takes a number of months and your legal advisers will help you make sure your business is IPO ready, advise the directors on their obligations, and work with corporate finance advisers to prepare the necessary documents and announcements.