A private equity investor is looking to deploy flexibility in deal structuring, because it will give him a competitive advantage over other, more constrained investors. We can think of a private equity deal structure as being made up from components of a menu of both financial and non financial instruments. We have ordinary shares, which can be either a small minority, an influential minority; or a majority. We have preference shares, which are much more customisable than ordinary shares. Non financial instruments include board seats, veto rights and ratchet mechanisms. Reporting requirements and enforcement mechanisms are also important.
Key learning objectives:
The approach of PE investors
Financial and non financial instruments
Main obstacles to successful deals