Control and Navigating Deals with McGuireWoods’ Anne Croteau and Alex Horn
There’s a lot that companies need to consider when deciding to pursue independent financial backing. The decisions companies make when striking deals almost always come back to control — a factor that has a significant impact on the future of the company. Depending on how much control the backer negotiates, different scenarios could lead to backers gaining significant veto rights, board control, or a total loss of management fees.The process is complex and involves many moving pieces. That’s why we brought Alexander Horn and Anne Croteau — seasoned independent sponsor deal negotiators — on today’s episode of the podcast.“A financial investor is going to want to have some control over any big corporate decision above a certain monetary threshold. [But] they don't want to get into the day-to-day and they don't want to get into the nitty-gritty … that's not their focus. It takes them away from their main focus, which is finding additional investment,” says Anne. On this week’s episode of Deal-by-Deal, Anne and Alex walk us through what considerations should be made when discussing independent sponsor deals and what’s at stake.Featured GuestsName: Alex HornTitle: Partner at McGuireWoodsSpecialty: Alex is focused on private equity and other finance transactions. In the past, he has represented business development companies (BDCs), small business investment companies (SBICs), and other private debt funds.Connect: LinkedIn Name: Anne CroteauTitle: Partner at McGuireWoodsSpecialty: Anne is focused on private equity and other financing transactions, mergers and acquisitions, and general corporate matters. She has represented lenders in first lien, unitranche, second lien and mezzanine credit facilities, equity co-investments, and kickers. She has experience advising on intercreditor relationships, capital structures, and complex restructurings.Connect: LinkedInAcquired KnowledgeTop takeaways from this episode ★ Negotiations are all about control. Different types of partners will have different outcomes and control issues: a family office might offer pure equity while a lender like a small business investment company will instead require significant equity backing. The type of partner will determine the level of control it has over your company: for example, large-scale and influential financial backers are likely to require significant control of your board as well as asking for veto rights and involvement in major financial decisions.★ Corporate sponsors generally don’t want to be involved in management. While corporate sponsors might have a significant amount of control, they don't want to be involved in the daily details. An independent sponsor’s main job is to find good investments.★ Consider the interests of every financial backer. Dealing with equity backers and debt financial backers could result in conflicts of interest if the interests of all parties are not taken into consideration when these deals are initially made. In some cases, management fees could be lost or a debt could go into default.Episode Insights[00:29] Meet our...