Reserved matters and consent rights
A central protection for PE investors is the reserved matters list: a set of actions that the company cannot undertake without the investor’s prior consent. These usually cover strategic, structural, and financial decisions, such as issuing new shares, amending constitutional documents, taking on significant debt, entering material contracts, or changing the nature of the business.
The breadth of the reserved matters list often becomes a focal point of negotiation. Investors typically seek a comprehensive list to avoid unilateral action by the founder team that could dilute value or alter risk. Founders, conversely, aim to retain flexibility and reduce administrative friction, particularly for decisions made in the ordinary course of business.
Veto rights over major decisions
Beyond general consent rights, PE investors frequently negotiate explicit veto powers over “major decisions”. These can include acquisitions or disposals, approval of annual budgets, capital expenditure above certain thresholds, and key executive hires or dismissals.
These veto rights allow the investor to influence strategic direction without assuming day‑to‑day control - maintaining alignment while protecting against value-destructive decisions. Management teams sometimes push back on vetoes connected to personnel decisions, stressing the importance of operational autonomy. As a compromise, parties may agree financial thresholds or require consultation rather than absolute vetoes for certain categories.
Information and reporting rights
Timely access to information is essential for investors to monitor performance and manage risk. PE investors therefore negotiate robust information rights, typically including:
- Monthly or quarterly management accounts
- Annual audited financial statements
- Updated budgets and business plans
- Board packs and minutes
- Access to management for periodic review meetings
Founders often accept extensive reporting obligations, recognising that transparency supports the relationship and can unlock additional value through investor expertise. However, negotiation may arise around frequency, format, or the proportionality of requests, particularly for businesses with limited administrative resources.
Enhanced rights on default or underperformance
If the portfolio company underperforms or triggers defined default events, PE investors typically gain enhanced rights. These may include step‑in rights, enhanced voting rights, or the ability to appoint or remove directors.
While investors view these as essential downside protection, founders seek to ensure that triggers are objective, measurable, and relate to material deterioration rather than temporary fluctuations.
Common negotiation dynamics
Negotiations between PE investors and management teams often centre around striking a balance between oversight and operational freedom. Key themes include:
- Ensuring reserved matters do not impede day‑to‑day running of the business
- Defining underperformance triggers clearly
- Calibrating anti‑dilution to be fair but protective
- Maintaining open communication to support trust and avoid an overly legalistic governance structure
Ultimately, well-structured protections promote alignment, safeguard investment value, and support sustainable growth, benefiting both PE investors and the management teams leading the business forward.
Authored by Darren Ormsby and Kirsty Wright.
DWF has one of the largest dedicated private equity groups in the UK, advising investors, management teams and portfolio companies across a wide range of sectors including financial services, technology, media and telecommunications, life sciences and healthcare, and real estate and infrastructure. With teams located regionally we are able to support from our offices in Manchester, Liverpool, Leeds, London, Newcastle, Glasgow, Edinburgh, Birmingham and Belfast.
With our standing and presence in the market, DWF can rely on an extensive network of skilled lawyers in various jurisdictions to provide our clients a seamless and co-ordinated approach to private equity transactions. If you have any queries on the issues covered in this article, please contact one of our private equity specialists: Frank Shephard, Jonathan Robinson, Alasdair Outhwaite, Darren Ormsby, Will Munday, Vicky Ross, Matthew Judge, Francesca Kinsella, Mark Gibson, Alistair Hogarth, Paul Pignatelli, Gemma Gallagher, James Morrison, Laurence Applegate, James Bryce, Scott Kennedy and Dhruv Chhatralia.
