Sponsor-Strategic Partnerships in M&A: Structuring Challenges, Bidding Concerns, Exit Strategies

Description

Innovative strategic buyers and private equity sponsors are increasingly partnering to facilitate acquisitions. Still, while private equity sponsors acquire companies with an eye toward a shorter-term return and exit, strategic buyers may be more concerned with integrating the acquired entity to expand their capabilities within a specific sector. While such sponsor-strategic buyer alliances can create value for both parties, they and their counsel should consider several issues before proceeding.

The partnership agreement should contemplate how to handle the governance, management, and decisionmaking authority post-acquisition. Counsel should draft board composition, veto rights, and exit provisions to address the different roles and objectives of the parties. Because negotiations may occur during the bidding process, the parties must have an understanding of their goals upfront. It may also be necessary to consult with the principals of the target company, further complicating the process of getting to a final agreement.

The sponsor must be aware of antitrust and regulatory issues that may arise when it combines forces with a strategic buyer who may be a competitor with the target. The combination may also present securities disclosure issues where the buyer or target is a public company.

Listen as our authoritative panel discusses the benefits of sponsor-strategic alliances in pursuing an acquisition and the operational, exit, and other concerns to address in the partnership agreement and acquisition process.