If you have a business that needs capital for expansion, or if you would like to sell a business or to purchase a business, please email us an executive summary of the business.
We have investors, including mid-cap United States based funds, that are interested in management buyout opportunities, sometimes known as "leveraged buyouts". The Canadian market is attractive for leveraged buyout funds in part because Canadian banks continue to be supportive lenders to debt-financed acquisitions.
What are management buyouts?
A management buyout ("MBO") is an acquisition of a company by executives or managers who either work for that company or have experience in the relevant industry. The buyer will typically purchase an equity stake in the company and concurrently obtain financing from a variety of debt and equity sources. An MBO may involve leveraging the company's assets to help finance the buyout (that is known as a "leveraged buyout". For example, the company's accounts receivable can be bought by a third party that specializes in accounts receivable financing and the proceeds can be paid to the seller as part of the deal on closing.
Kohlberg Kravis Roberts & Co. ("KKR") is one of many investors that specializes in leveraged buyouts. They are interested in acquiring divisions of conglomerates that need to be sold to raise money or because the seller needs to focus more on its core business. Ideally, a "good business that's non-core (to the seller) and kind of forgotten by its existing owners". KKR also likes public companies that are "unloved" by the market if management of the company is interested in taking the company private through a leveraged buyout.
Why pursue a management buyout?
Many people reach a stage in their careers where managing a company for someone else is no longer enough or is no longer interesting and fun. They typically want more control over the direction and strategy of the company. They want to become owners. This desire may be prompted by entrepreneurial drive or a wish to accelerate personal wealth creation. The catalyst is often a combination of factors and the personal need for independence and a greater challenge. One alternative is to start a business from the ground up. The other is to buy an existing business that you understand and, as KKR founder Henry Kravis says, "get inside the company and make a strategic and operational difference".
When do management buyout opportunities arise?
Larger corporations continually divest or "spin-off" business units that no longer fit their ever-evolving corporate strategies. Periods of economic uncertainty or instability often accelerate such divestitures because of downsizing or streamlining motivations. Sometimes, merger or acquisition transactions create or lead to spin-off opportunities. Or foreign companies with Canadian subsidiaries may decide to focus more attention on "problems at home", prompting a need to divest of a Canadian subsidiary, or at least open up a greater willingness to consider a proactive enquiry about the possibility of an MBO. Other opportunities arise when owner-managers or family-owned companies either have an immediate or approaching need for liquidity, or simply wish to turn their company over to someone they trust.
Is a deal possible?
Many MBO opportunities have been lost because decisive action was not taken fast enough. Action needs to be taken after the first hint or specific indication that a business is either available for purchase or is about to be put up for sale. Incumbent managers often have the earliest opportunity to explore the feasibility of a deal. But they also may quickly find themselves in an awkward or sensitive situation given the potential for actual or perceived conflicts of interest. TheLegalNet recommends immediately seeking outside guidance and advice from experienced sources as the best means to explore the feasibility of a potential MBO in a timely manner.
If there is any opportunity to be proactive in proposing an MBO, this approach should be strongly pursued because waiting too long or wanting to be �last at the table� often results in a lost opportunity.
Selling a company is seldom easy. The company must be given an objective valuation by an expert business valuator. Then the seller needs to find a suitable buyer, typically by using an agent or business broker. An acceptable price, tax structure and legal terms and conditions must be negotiated. Protracted discussions can affect employee morale and customer loyalty. Professional advice is essential.