Structuring Private Equity Co-Investments and Club Deals: Risks and Opportunities for Sponsors and Investors

Description

Co-investment and club structures provide opportunities to address private equity sponsor and LP goals. From the sponsor perspective, a co-investment or club structure can fill a capital need--whether a growth need, acquisition financing, or a rescue need. For more minor sponsors, a co-investment or club structure can create a business opportunity for a sponsor unable to raise sufficient permanent capital.

From an LP or investor standpoint, co-investment opportunities offer the ability to gain additional access to desired investments or opportunities to sit higher in the capital stock of a portfolio company or asset.

The terms of co-investment and club arrangements are typically negotiated on a case-by-case basis depending on factors such as the type and identity of the investor, asset type or portfolio company business, the intended use of the capital, and critical tax considerations. Key terms include, among others, fees, expenses, anti-dilution, most favored nation, and affiliate transaction provisions.

Notably, counsel must design the co-investment opportunity or club deal to address a variety of often-overlooked, essential regulatory and tax considerations, especially broker-dealer and investment adviser regulation, and the individual circumstances of the investors.

Listen as our authoritative panel of practitioners analyzes opportunities and risks of co-investments and club deals in private equity for both sponsors and investors, how to choose the proper investment structure, negotiate key deal terms, and navigate the tax and regulatory ramifications of the deals for the investor and the sponsor.