MBO With Tesla UK Ltd.

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A management buy-out (MBO) was established earlier this year, with manufacturer Tesla UK Ltd. The company, based in Birmingham UK manufactures and supplies into the heating and plumbing industries, providing products to national and independent merchants and distributors in the UK and overseas. The company generates a turnover in excess of £10m.

Insider Media Limited reported that the management team’s leader Patricia Quinn, Managing Director of Tesla UK Limited, said: “This transaction presents a great opportunity for myself and the wider management team.

“We look forward to continuing to develop innovative products and to maintaining and growing our customer and supplier relationships.”

The shareholders were advised by Chris Wright of Blackhams Solicitors, who Lawyer Monthly have spoken with.

Interview with Chris Wright of Blackhams Solicitors.

Please tell me about your involvement in the deal?

My involvement concerned advising the selling shareholders on all the legal aspects of the transactions, drafting, negotiating and approving the key documents for the share disposal, confidentiality agreements, the Share Purchase Agreement, Shareholders’ Agreement, warranties, banking documents, and loan notes.

 

Why is this a good deal for all involved?

From inception, the original director and controlling shareholders through hard work and effort built up the sale business relatively swiftly both organically and by acquisition into an international business, in the process moving production back to the UK from Pakistan. It held several key patents in the heating and plumbing industry and has grown into a major brand in their market. They now wish to take a step back from the business and concentrate on another unconnected business in which their interests lie. At the same time, by selling to the continuing younger management team, this team are best placed to take this successful business to the next level in the long term and gave them a stake in the equity. Further, by selling to the existing management, key customers could be assured a smooth transition and assured continuity with business very much as usual. For the key stakeholders brand security could be assured.

 

What challenges arose? How did you navigate them?

Firstly, as a key player in the sale, it was important that ongoing pre-contract negotiations were kept confidential, as they were commercial sensitive.

Secondly, although the Vendors were stepping back from this successful business as part of a long term “retirement” strategy, they nevertheless remain interested and are developing an unconnected business which also traded from the same premises and for which short-term occupation would be required following the sale of the main business, but without hindering the expansion plans of Tesla post sale.

Thirdly, with the Vendors having less day to day control in the management of the business in more recent times, the Vendors sought more limited obligations as to warranties for the business.

The Vendors’ personal wishes were of course commercial: to maximise the sale price whilst at the same time keeping fees, relatively speaking, to a minimum. At the same time, common with a sale and purchase, the Purchasers’ financial means to meet fees and the purchase price were limited.

The Vendors’ unconnected business was carved out of the sale and continued occupation of the premises was provided by a fluid, but minimum term licence tied to financial objectives.

The balance between the Vendors’ warranties and Purchasers’ requirements  in respect of  the financial respect of the business was achieved by   a locked box accounting method to confirm the price.

On the funding and fees mitigation front, a successful result was achieved by vendor assistance through term loan notes to provide funding for part of the purchase price, and by the parties’ collaboration in securing continuation of the existing banking facilities through inter-party agreements with the Bank.

 

What was one key lesson you take away from this transaction?

By adopting a co-operative approach and taking into account all the requirements of the various parties where possible, we were able to achieve a commercially and legally satisfactory result for our client vendors.

 

How do you hope this deal to set precedent for others in 2018?

The precedent set by this deal is to demonstrate that notwithstanding the so called negative influence of Brexit, confidence in management buy outs where Purchasers are keen to proceed, and Vendors are willing to defer and elements of the purchase price remains high and commercially rewarding for all parties prepared to take a medium and long-term view. As a consequence, Blackhams have recently established a new team of commercial and commercial property lawyers comprising Neil Ireland as Head of Department, Peter Smart and myself as members. Based at our head office in Birmingham and with a combined experience of over 75 years with major firms in the Midlands, we deal with all aspects of work of a commercial nature.

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