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Here are critical pillars every private investment consortium must establish from day one:
1. Governance.
- Decision making: Which matters require unanimous vs. majority approval.
- Management: Manager duties and reporting.
- Due Diligence Sign-off: Allowing clear exit points if the deal deviates from agreed parameters.
- Minority Protection Rights: some or all of tag-along rights, vetoes over key reserved matters, and transparent reporting obligations to safeguard non-majority participants.
2. Transaction Financing.
- Initial Equity Commitments: Subscription amounts, deposit timelines, and banking arrangements.
- Debt Structuring: Clarifying if and how leverage may be raised.
- Default Remedies: Protecting the consortium against a failure to meet a capital call.
3. Cash Flow Management
- Pre and Post-acquisition management requires a structured framework for running costs, and overheads.
- Mandatory vs. Discretionary Capital Calls: Setting clear rules for additional capital injections required for operating shortfalls, mandatory asset improvements, or unexpected tax liabilities.
- Distribution Waterfall: Defining how operating income and capital proceeds are distributed.
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