What are the key legal elements of an MBO?

There are three principal legal workstreams, being:

1. Sale documents
   Governing the terms on which the target’s shareholders are willing to sell their interests.
2. Equity
   The management team’s terms as ongoing shareholders post-MBO, usually through Equityco (see diagram above). This workstream may also include revisions to the management team’s employment terms.
3. Debt
   If the MBO is to be debt-financed (as many mid-market and large MBOs are), the terms of this debt, including any security granted in favour of the lender(s).
   Each of these workstreams, and the key issues arising in respect of each of them, is explored in further detail below.