Investors
Club deal instead of going it alone
Governance, waterfall, call and put rights: how several investors hold one asset together — and which cases belong settled upfront.
Club deals work well as long as everything goes to plan. They become demanding at the first funding requirement or when a shareholder wants to exit. The documentation is written for those cases — its legal drafting belongs with the legal advisers involved.
Note: the following provides a general overview of possible transaction structures and related questions. It does not constitute legal or tax advice. The specific legal and tax consequences should be reviewed for each transaction by the relevant professional advisers.
Governance before economics
The economic terms are usually settled quickly. Discussion arises over who decides: on a sale, refinancing, larger investments, a change of manager. In practice a tiered catalogue works well — simple majority for day-to-day matters, qualified majority for the few existential ones.
Deadlock should be resolvable. Without a mechanism — expert determination, shoot-out or an automatic sale after a deadline — a single shareholder can block decisions for a long time.
The funding case
The most common conflict. Some shareholders can and want to inject further capital, others do not. Without a prior agreement, discussion arises over valuation and dilution, usually at the worst possible moment.
Pre-defined dilution mechanics with an uplift for the funding shareholder, combined with a time-limited buy-back right, are common. The effectiveness and reach of such provisions depend on the specific drafting and should be reviewed legally.
- Model the waterfall including hurdle and catch-up in full, not just in words
- Tag-along and drag-along above a defined threshold
- Exit windows with pre-emption rights for co-shareholders
Who leads the deal
A club deal needs a lead who decides operationally and is remunerated for it. Equality without leadership produces slow processes — and in acquisition situations speed is a competitive factor.
In short
Club deal documentation is written for conflict. Funding, deadlock and exit belong discussed before the acquisition and drafted legally.
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Legal and tax notice
The information on this website is provided for general information on real estate, financing and corporate transactions only. It does not constitute legal, tax or other individual professional advice and cannot replace case-specific advice from suitably qualified lawyers, tax advisers or other professionals.
The legal and tax consequences of a transaction depend in particular on its specific structure, the parties involved, existing contracts and the applicable legal and tax framework. Such questions should therefore be reviewed individually by the relevant professional advisers before any decision is taken.
Within the content presented on this website, Fox Capital does not provide legal or tax advice.