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Direct Healthcare Services is a specialist British manufacturer of pressure area care solutions with a comprehensive portfolio of innovative, award-winning products including mattresses, cushions and overlays. Springfords were recently involved assisting our client, the Management Team of the company, to complete a Private Equity (PE) backed Management Buy-Out (MBO) transaction with NorthEdge Capital. The deal took 10 weeks to complete from start to finish and was valued at £15m.
We were working alongside legal advisors on behalf of the Management Team providing the heavy tax input required in structuring the deal because, as always, PE backed transactions are by their nature structurally complicated and this one was no exception.
So how did we help get this deal over the line?
Well, we made sure that the vendor equity in the buy-out company and the Management equity and debt in the buy-out vehicle itself was structured such that this would meet the requirements of the capital gains tax Entrepreneur Relief (ER) legislation – in simple terms this means that everyone benefits from having their capital gains on any share sale taxed at 10%. This was a requirement not only on the buy-out itself, but in terms of the equity and debt structure going forward. It was also crucial that the equity structure of the deal met the aspirations of the Management Team in terms of the “sweet equity” economic and voting rights attached to the different classes of Management equity. The structuring of the equity and debt mixture had to meet the commercial requirements of the PE funders while at the same time being tax efficient for the enlarged corporate group post completion. Needless to say, the overall tax structuring of the deal fluctuated several times during the course of the transaction, reacting to the changing commercial requirements of the parties, so we were pleased when a final overall commercial and legal structure was agreed.
Once the structure was agreed, our job was not finished. Together with the legal advisors, we tax negotiated and agreed the tax warranties, indemnities and disclosures on behalf of the Management Team. This exercise covered the full range of taxes including corporation tax, research and development claims, transfer pricing, vendor shareholder loans, vendor share option taxation, VAT, PAYE, NIC and a range of other payroll taxes, stamp taxes, interest deductions, transaction costs tax issues and deferred tax issues. So lots of tax to consider!
What was also important was dealing with and obtaining tax clearances for the transaction on behalf of all the vendor shareholders, inclusive of the Management Team. We were successful in securing advance tax clearances first time from HMRC which in turn, allowed the transaction to proceed in accordance with time table. This was another critical aspect of the overall transaction since the advisors to the PE backers would not allow them to proceed to completion of the deal until the deal structure had been fully disclosed to and advance clearances obtained from HMRC.
Finally, we were heavily involved with the legal advisors to the Management Team in negotiating and agreeing the investment documentation and other legal documentation generally.
Working closely with the Management Team and the various professional and legal advisors involved, both vendor and PE advisors, is key to the management and timely completion to these types of corporate finance transactions where significant tax input is always to the fore. Springfords are well placed to advise on this and other types of corporate transactions, whether that be PE type deals, corporate restructurings or reorganisations or other type of exit or corporate acquisition. Please contact Kevin Meaney at firstname.lastname@example.org
For more company information click on www.directhealthcareservices.co.uk.