UK Law and Practice Contributed by: Carly Gulliver, Giles Distin, David Anderson, James Dawson, George Danczak and Elvan Hussein, Addleshaw Goddard
for UK incorporated companies cannot be overridden by foreign stock exchange rules.
and stakeholder objectives. The chosen structure ulti- mately reflects these commercial and strategic con- siderations. 4.3 Liquidity Event: Form of Consideration In the UK, the form of consideration in sales of pri- vately held companies is varied. Over the past 12 months, there has been continued use of alternative deal structures, with consideration including a mix of cash, shares in the buyer (stock-for-stock) and loan notes. Share or loan note consideration is often used to bridge funding or valuation gaps, giving sellers a potential upside in the buyer or its enlarged group. Full cash consideration deals remain prevalent, espe- cially with trade buyers, but these frequently include deferred or contingent mechanisms such as earn-outs or deferred payments to bridge funding gaps. The chosen form of consideration is ultimately driven by deal dynamics, buyer profile, and the parties’ appetite for ongoing involvement and risk. 4.4 Liquidity Event: Certain Transaction Terms In the UK, founders and owner managers are gener- ally expected to stand behind warranties and indemni- ties (including tax) after closing. VC and private equity investors, however, usually only provide fundamental title and capacity warranties relating to ownership of their shares, and do not typically give broader warran- ties or indemnities. Deal-specific indemnities are included in many deals, and liability caps remain low, with GBP1 caps backed by warranty and indemnity (W&I) insurance now standard. The competitive insurance market has driven down W&I premiums, and insurers are enhanc- ing cover, such as offering nil excess on certain opera- tional deals. Retention or holdback arrangements are less com- mon, particularly where W&I is utilised, but are still utilised as a risk allocation tool for known liabilities on deals.
4. Sale as a Liquidity Event (Sale of a Privately Held Venture Capital- Financed Company) 4.1 Liquidity Event: Sale Process In the context of a company sale as a liquidity event, the choice between running an auction process or engaging in a bilateral negotiation with a chosen buyer has evolved over the past 12–18 months. There has been a noticeable increase in off-market and bilateral sale processes, with fewer formal auctions, reflect- ing greater appetite for primary and off-market deals. Nevertheless, auction processes remain preferred for highly sought-after assets, where strong competition enables sellers to leverage competitive tension and secure key legal terms early in the process. For trans- actions involving a limited buyer pool or special situ- ations, bilateral negotiations are more common and typically simpler, with lower associated fees. Even in bilateral scenarios, sellers are advised to create the illusion of competitive tension to maintain negotiating leverage. 4.2 Liquidity Event: Transaction Structure For sales of privately held UK technology companies with multiple VC investors, transaction structures are highly deal-specific and depend on factors such as the company’s growth stage, buyer appetite, valua- tion expectations, and alignment between incumbent and new investors. Sellers typically consider both a full 100% share sale (often to a trade buyer) and a secondary transaction with private equity, which may allow existing VC investors to reinvest in the new investment vehicle. The exit terms of the original VC investment and the ambitions of the target company’s owner managers are also key: management may prefer a full exit for immediate liquidity, or may choose to de-risk and reinvest alongside private equity for, typically, a fur- ther three to five years. Increasingly, sellers run a dual-track process to maximise value and flexibility, enabling both full exits and partial sales with ongo- ing VC participation, depending on market response
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