The Quest challenge
Obtain an upfront agreement on key terms for the sale of the founders controlling interest to a previously minority shareholder including pricing, timing and appropriate mechanisms to safeguard the founders’ residual minority interests.
The firm’s main objectives:
- Safeguard and provide liquidity for the founders’ residual minority interests
- Obtain a market appropriate commercial outcome for the founders
The Pepper Property Solution
At the time of Pepper’s engagement, the founders held an 80% controlling interest in Quest with the balance held by Ascott, who had previously acquired a minority interest. In late 2016, Ascott indicated their interest in increasing their shareholding to a controlling interest. The Quest founders were prepared to engage with Ascott subject to reaching upfront agreement on key terms including pricing, timing and appropriate mechanisms to safeguard the founders’ residual interests. Pepper was mandated by the founders to advise on the sale, which entailed a controlling interest in Quest Serviced Apartments Group to The Ascott Ltd. The Capital Solutions team’s role entailed the negotiation of transaction documentation, which reflected the quantitative and qualitative objectives of the founders, providing strategic advice, overseeing the legal documentation process, managing the due diligence process, facilitating discussions with Ascott as required, and providing general oversight to settlement. Pepper adopted a two-phased approach to the transaction:
Initial phase: Engaged a third party valuation ahead of price negotiations with Ascott.
Transaction phase: Pepper was then responsible for the negotiation of key commercial terms on behalf of the founders and associated transaction documentation. The key commercial terms were documented in a non-binding Memorandum of Understanding. The MOU was subject to a period of due diligence which was completed in tandem with the negotiation of the legal documentation.
- The Transaction valued 100% of Quest at AUD300 million, on a going concern basis and provided appropriate mechanisms to safeguard and provide liquidity for the founders’ residual minority interests