In South African private M&A transactions, buyers commonly acquire 100% of the target company's shares. To manage the risk associated with the target's valuation, buyers may opt for holdback or earnout mechanisms, deferring payment of the balance based on milestone achievements.
The UK has seen a noticeable pattern with buyers moving away from an immediate 100% acquisition. Especially when paying a high multiple, buyers now prefer purchasing a defined majority interest upfront (say, 60%) and deferring the purchase of the remaining 40% for a specified period (typically 2 to 5 years) through a call option.
Providing for a call option for the balance of the shares of the target company, gives the buyer the right (but not obligation) to purchase shares on predetermined terms.
When considering such option agreements, attention must be given to the triggers, purchase price calculation, interim undertakings and expert determination, amongst other factors.