How does a management buyout work? Typically, the management team running a company has an opportunity to acquire the company from the current owners. This team can partner with a private equity company that can provide the equity capital and arrange the bank debt financing necessary to buy the company. Simply put, the basic timeline milestones in a deal are... agree to a price, establish a time period for due-diligence, arrange debt financing, analyze the company and negotiate the definitive terms of the transaction. Back to Top
How do the new owners and executives make money in a management buyout? The return on investment for investors and management is driven by growing the cashflow of the business, paying down the debt and then reselling the business a few years down the road. See the MBO Value Creation link for an example of how value can be created in an acquisition or management buyout. Back to Top
What do you actually do? Verify that a potential deal opportunity actually exists. Explore the best means to pursue a deal with you and your team directly. In the event that your target company, deal size or industry focus are not a fit for your primary contact, we will make a handoff to a reputable private equity investor that can focus on you and your deal and move to successfully close the transaction. Once that is done, you run the business and drive growth and profitability. Back to Top
How do I select a private capital provider? There are many variables involved in selecting a capital provider. Here are a few...reputation, focus area, investment criteria, industry experience, personality, compensation packages, value addition and many more. Back to Top
What is the market rate for an option pool? Option pool sizes vary based on deal size, structure, pricing and the level of experience of the executive team. A range of 5% to 15% could be considered 'market' today, depending on the deal specifics as described above. Back to Top
How do I garner more than the market rate for my equity participation? The best way to hit the top of the options range is to have a proprietary deal lined up at an attractive price. In that event, the embedded value built into the transaction itself can increase the upside for all parties. Back to Top
How do private equity firms come up with a price for a business? The value of a company is typically described as a multiple of cashflow or EBITDA. The key factor in a company's value is the sustainability and growth of future cashflows. Pricing is adversly affected by high capital expenditure in a business or in highly cyclical businesses. The possbility of an attractive exit to a strategic buyer can add to the company's value today. Back to Top
How are you different than an investment bank? The professionals linked to this site work for private equity investment firms that manage committed capital designated to acquiring or investing in companies. We either back the MBO executive ourselves or refer them to another fund and contact person that also has committed capital to do deals. There are no fees associated with this process and the executives build a relationship with their future financial partners throughout the deal process. Back to Top
How long does a deal take? 60 days after agreeing to a price with a seller is considered adequately fast in most middle market situations. 30 days is extremely fast and some transactions take much longer. Proprietary deals (those without a banking intermediary or competing bidders) often take much longer because getting the seller to table can take years. Back to Top
