The “Lead Investor” in M&A: Power, Prerogatives, and Tensions in Collective Investment

In mergers and acquisitions (M&A) and business financing in Spain, the figure of the “lead investor” or principal investor emerges as a key pillar when multiple investors decide to back the same project. As an attorney specializing in M&A, I can affirm that this role involves not only contributing a significant portion of the capital but also leading the operation, which entails unique prerogatives, as well as risks and tensions with co-investors.

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The “lead investor” typically negotiates the principal terms of the investment agreement, from the company’s valuation to the clauses of the shareholders’ agreement. This position grants advantages such as the right to appoint board members, influence strategic decisions, or even secure preferential rights, such as the drag-along right, which allows the lead investor to compel other shareholders to sell if an attractive offer arises. Furthermore, their significant stake in the capital can ensure supermajorities in critical decisions, such as approving new financing rounds or changes in the company’s purpose, consolidating their control over the project’s direction.

However, this power is not without controversy. Minority co-investors may perceive the “lead investor” as a threat to their autonomy, especially if their interests diverge. For example, the drag-along right can cause friction if minority shareholders believe the sale disproportionately benefits the lead investor or if they are not prepared to exit the project. Similarly, supermajorities can hinder decision-making agility, as the “lead investor” could block initiatives that do not align with their vision, creating governance tensions.

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Why do business angels agree to preferential settlement clauses?

Business angel investors agree on preferential liquidation clauses to guarantee the recovery of their initial investment and maximise their return.

A particularly delicate aspect is the right of first offer (ROFO), frequently granted to the “lead investor.” This right allows them to match any purchase offer for shares before it is extended to third parties. While it protects their position, it significantly impacts M&A dynamics: potential external buyers may refrain from initiating due diligence—with its associated costs and efforts—if they know the “lead investor” has priority in acquiring those shares. This reduces competition in the sales process and can limit the value minority shareholders obtain for their shares, leading to discontent.

In conclusion, the “lead investor” is an essential figure in structuring collective investments, but their role requires a delicate balance. A well-drafted shareholders’ agreement, with clear clauses on rights and obligations, is crucial to mitigate conflicts and maximize the project’s success. Understanding these dynamics is key to navigating the investment landscape successfully in Spain in 2025.

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