Bringing a Private Equity Investor on Board: Key Considerations to Anticipate
Bringing a private equity fund into a company’s share capital involves much more than negotiating its valuation and the size of the investment. It also reshapes the company’s corporate governance, the balance of power among shareholders, and the terms under which the founder or management team can continue to steer the business and execute its strategy.
Reinhart Marville Torre has published its practical guide, “Managing Private Equity Investment in Your Business”, designed to help business owners and entrepreneurs identify the key legal and strategic considerations before, during and after a private equity investment.
Anticipating What Happens After the Investment
At the time of a private equity investment, the interests of the parties are largely aligned: financing the company’s growth and creating value.
However, the legal documentation negotiated at this stage must also address situations that may arise several years down the line: changes to the business plan, additional funding requirements, the departure of a key executive, disagreements over strategic decisions, or preparations for an exit.
The challenge is therefore to establish a framework that provides adequate protection for the investor without restricting the company’s and its management team’s ability to make the decisions necessary to drive the business forward.
The guide covers, in particular:
- Corporate governance and the allocation of decision-making powers among management, founders and investors;
- Leaver provisions and their implications for founders, executives and management teams;
- Reporting obligations and investors’ information rights;
- Competition law considerations, which may arise earlier than anticipated depending on the fund’s portfolio companies and sector focus;
- Business planning and future funding requirements;
- Legal formalities required to implement the mechanisms set out in the shareholders’ agreement;
- Liquidity and exit arrangements, which should be considered from the outset of the investment.
The objective is not to secure the broadest possible contractual protections, but to strike the right balance between safeguarding the investment, protecting management’s interests and preserving the company’s ability to pursue its growth strategy.
In particular, the guide highlights how performance-linked provisions can have significant implications for corporate control if the company’s actual performance diverges from its business plan.
Bridging the Gap Between Legal Documentation and Practice
The guide draws on three complementary sources:
- The practical experience of Reinhart Marville Torre’s lawyers across Corporate/M&A, Litigation and Competition Law;
- An analysis of real-life situations and disputes in which negotiated contractual provisions have had to be implemented and enforced;
- 12 interviews with founders, business leaders and investment professionals, including representatives from the private equity, venture capital and family office sectors.
Contributors include professionals from Astorg, Alven, Elaia, 4DX Ventures, Matera, Theremia and Solendro, among others.
This approach provides a practical perspective on how shareholders’ agreements operate in practice, particularly when the parties’ interests diverge or the business develops differently from what was originally anticipated.
Key Questions to Consider Before Bringing in an Investor
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To what extent should the investor be involved in the company’s decision-making?
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Will the veto rights negotiated today remain appropriate as the company grows?
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What happens to the founder if the targets set out in the business plan are not met?
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Can the exit and leaver provisions be effectively implemented and enforced as intended?
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Could the fund’s existing portfolio investments give rise to competition law or confidentiality concerns?
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Will management’s economic interests remain sufficiently aligned with those of the investors under different exit scenarios?
The guide seeks to address these questions and provide practical insights into their potential implications.
Download the guide
Are you a business owner, founder, investor or adviser to a company considering bringing a private equity fund into its share capital?
Download our practical guide to identify the key issues to address early on and lay the groundwork for a successful relationship between the company, its management team and its future investors.