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Corporate Services & Commercial Contracts

Management buyout preserving the future of a longstanding business

We advised on the management buyout (MBO) at quality knitwear manufacturer Robert Mackie of Scotland (RMOS). Managing director, Graeme Haddow purchased the Ayrshire based business from the Mackie family to continue the company’s heritage and position in the local community.

The MBO is the acquisition of a company by the management team supported by private equity investment and/or debt financing. The Morisons Team advised on the complex Heads of Terms, which went beyond standard terms such as price, exclusivity period and restrictive covenants and included a number of transaction-specific conditions relating to matters such as finance and property. As is often the case with MBOs, the due diligence process was limited and the giving of seller’s warranties in many cases being the most contentious area for management buyers. On an MBO, the level of warranty cover that the seller will offer to Newco is typically significantly lower than on a purchase between arm’s length parties because of the knowledge that management already has, or should have, about the target business. While a reduced level of warranty protection may be acceptable to management, it is unlikely to be acceptable to the private equity investor or lenders funding the deal.

Our team set up Newco, prepared and advised on the acquisition documentation, including a share purchase agreement and tax deed and reviewed and advised the management on the mix of funding including a proposed equity investment, ‘soft loan’ agreements and bank facility documentation. The challenge with all MBOs is addressing the balance of risk, particularly to management, who find themselves pulled in different directions and keeping the transaction on target to completion.

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