Investor buy-out clauses

by a searcher from The University of Chicago - Booth School of Business

1 year ago

Hi,
Self-funded searcher thinking through investor buy-out clauses/terms. Anyone willing to share what has worked or what is typical within the search fund world? Any premium to the agreed upon IRR?  Thank you!

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professional from Dartmouth College

Most larger investors won't agree to an optional buy out at the option of the company since they want to control their exit. For smaller investors if certain events occur that make their involvement with the company undesirable (bankrupcty of the investor or even a personal divorce for example), there is often a mechanism for a buyout, often at FMV determined at the time by agreement or a third party appraisal mechanism. Larger investors may ask for a redemption or a put right, which would typically be at FMV since this is likely a scenario when things haven't gone well or they have to divest for an internal reason and a premium wouldn't be appropriate (other than maybe their preferred return). Generally a buyout is more appropriate for an individual who is very involved in the company and if that ceases to be the case it may make sense to have a prenegotiated mechanism for a buyout.

1 year ago | like reply | 1 like

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