Investment Documentation | Guide

Guides

Your insider guide to private equity

Reviewing Investment Documentation

Engage Legal Counsel

Engaging experienced legal counsel who specialises in private equity transactions is essential. They will guide you through the process, ensure compliance with legal requirements, and protect your interests.

I have experienced deals where the counterparty reviewed the agreements drafted by our lawyer without assistance from external counsel as they deemed the accompanying legal cost prohibitive. The outcome was that we negotiated terms which were very favourable to us. Do not be penny-wise and pound-foolish.

PS: On a side note, I realised years later that portfolio companies who were pushovers at this stage should have rang alarm bells. Think about it; how you approach negotiating our investment in you mirrors how you negotiate with your customers and suppliers. Our best investments had shrewd and tough negotiators on the opposite side. 😊

Understand the Term Sheet

Carefully review the signed investment term sheet. This document outlines the principal terms and conditions agreed upon between us. Work closely with your legal counsel to ensure agreements accurately reflects the agreed-upon terms.

Common Agreements

1. Investment Agreement

The investment agreement is the document that governs the terms of the investment. It outlines the rights, obligations, and responsibilities of both parties. Examine the condition precedents and ensure you can meet them on time. Where the timing of a condition is out of your control, consider negotiating for that condition to be moved to condition subsequent.

2. Shareholder Agreements

A shareholder agreement is necessary where there are multiple shareholders in your company. This agreement defines the relationship between shareholders and establishes each party’s rights, restrictions, and obligations.

Regulatory and Compliance Matters

Ensure you comply with all legal and regulatory requirements associated with the investment. This may include obtaining necessary approvals, licenses, permits, or filings with regulatory bodies, lenders and customers.