Buying a construction business with a retained minority manager: SPV acquisition, growth shares and four-year deferred consideration

At a glance

Our client, an established construction business, is acquiring a Bristol construction and maintenance company for a price in excess of £2m, paying more than half on completion and the balance over four years. The purchase runs through a new SPV with bank funding. A director and employee of the target, who held shares, is staying on and keeping a stake through a new class of growth shares. We act for the buyer alongside its tax adviser, lender, finance broker and accountants.

The client and the objective

The client is growing by acquisition, buying similar construction businesses in different regions and running them as a group. The objective on this deal was to acquire the company and its contracts, keep the manager who runs it day to day motivated and tied in, and fund the price with a mix of bank debt and deferred consideration without over-stretching the group.

The deal

• A new SPV, owned by the client, as buyer of the entire issued share capital from the principal seller.
• Price in excess of £2m, with a seven-figure payment on completion and the balance deferred in instalments over four years.
• Bank funding for the completion payment, with the lender's solicitors taking security.
• The retained manager keeping an interest of around fifteen per cent at target level through new growth shares, with vesting, rather than participating in the SPV.

Key legal issues and how we solved them

Keeping a manager as a shareholder without losing control

The tax adviser proposed that the manager retain her interest at target level and receive new growth shares bringing her holding to around fifteen per cent. We implemented that with a section 431 election to fix the tax position on acquisition, vesting provisions so that the shares are earned over time, and good and bad leaver terms adopted at completion as part of the negotiated bargain. Imposing leaver terms later by special resolution would have risked an unfair prejudice challenge, so they were agreed up front.

Funding the structure within the Companies Act

Part of the proposed structure involved the company buying back shares. We advised that the constraint was not only whether there were distributable profits but the statutory requirement for shares to be paid for in full on purchase, and that borrowing creates cash without creating distributable reserves. The structure was adjusted accordingly.

Due diligence findings

Due diligence surfaced several issues typical of an owner-managed construction business: customer contracts that were unsigned or had expired, employment contracts that did not meet current requirements, gaps in corporate compliance, an ongoing litigation matter and data protection shortcomings. Each was dealt with in one of three ways: fixed before completion as a condition, covered by a specific indemnity, or reflected in the price and the deferred payment mechanism.

Deferred consideration over four years

With a large part of the price payable over four years, the sellers wanted certainty of payment and the buyer wanted the ability to set off claims. We drafted the deferred consideration terms with a clear payment schedule, set-off rights for warranty and indemnity claims, and acceleration only in defined circumstances.

Outcome

The share purchase agreement and funding documents are agreed and the deal is scheduled to complete at the end of November 2026, with the retained manager's growth shares issued and the lender's security taken on completion. This page will be updated once it has completed.

What this deal shows

• Retaining a key manager as a shareholder works, but the leaver terms, vesting and tax election have to be settled at completion, not afterwards.
• Due diligence in owner-managed businesses rarely finds nothing; what matters is allocating each finding to a fix, an indemnity or the price.
• Deferred consideration is a financing tool and a protection tool at the same time.