MBO - best way to table an unexpected offer
Discussion
OP- I lead around 5 acquisition transactions every year, and have done around 25 transactions in the last few years including acting for shareholders who have been approached by their management team (and conversely I've suggested a Vendor Initiated Management Buy- Out VIAMBO to shareholders before)
The MOST succesful ones are the ones where everyone is prepared to be collegiate and remembers that the key point is to transfer value whilst maintaining a profitable successful business. Success in an acquisition is rarely directly in line with price- other factors are far important (mostly post acquisition integration/management). Whether the acquisition works post completion seems to have no real correlation between how much money is spent- the correlation is absolutely between the amount of goodwill left between Vendor and Acquirer post completion.
What I know with absolute certainty is that a successful M&A transaction is almost entirely down to the personalities involved!
If it were me I'd have a soft conversation with the shareholders, ask them what their plans are and whether they would be interested in selling their business to you with their support. The key point here is that it is THEIR business, and going in heavy handed with the merest hint that you think one of them is "lazy" will absolutely backfire.
It is also worth making sure that you allow them enough time to consider the pros and cons!
If I were advising the shareholders I'd absolutely be considering what a full market price for the business would be (so don't be surprised if they benchmark your offer against a trade buyer) and whether the transaction could be completed another way. You don't mention the EBITDA of target, it sounds a little small for PE, but this could be a way to go. With your offer I would expect you to have to provide some security for the deferred consideration.
From your perspective I'd absolutely be considering what it will be like running the business once it has significant debt and associated cash covenants.
The worst is that you get sacked! the worst case (if you play your cards right) is that you end up with equity in the business laying the groundwork for you to purchase the business over time.
there are a multitude of structures that should allow you to compromise to find a transaction that works for all, but certainly the first point is to find out if shareholders have any interest in exiting.
The MOST succesful ones are the ones where everyone is prepared to be collegiate and remembers that the key point is to transfer value whilst maintaining a profitable successful business. Success in an acquisition is rarely directly in line with price- other factors are far important (mostly post acquisition integration/management). Whether the acquisition works post completion seems to have no real correlation between how much money is spent- the correlation is absolutely between the amount of goodwill left between Vendor and Acquirer post completion.
What I know with absolute certainty is that a successful M&A transaction is almost entirely down to the personalities involved!
If it were me I'd have a soft conversation with the shareholders, ask them what their plans are and whether they would be interested in selling their business to you with their support. The key point here is that it is THEIR business, and going in heavy handed with the merest hint that you think one of them is "lazy" will absolutely backfire.
It is also worth making sure that you allow them enough time to consider the pros and cons!
If I were advising the shareholders I'd absolutely be considering what a full market price for the business would be (so don't be surprised if they benchmark your offer against a trade buyer) and whether the transaction could be completed another way. You don't mention the EBITDA of target, it sounds a little small for PE, but this could be a way to go. With your offer I would expect you to have to provide some security for the deferred consideration.
From your perspective I'd absolutely be considering what it will be like running the business once it has significant debt and associated cash covenants.
The worst is that you get sacked! the worst case (if you play your cards right) is that you end up with equity in the business laying the groundwork for you to purchase the business over time.
there are a multitude of structures that should allow you to compromise to find a transaction that works for all, but certainly the first point is to find out if shareholders have any interest in exiting.
Birkin1932 said:
Ahhh, financial advisers.
I must be honest, they wouldn't be my first port of call. But everyone to their own. As long as you were happy with your eventual outcome.
Good Corporate M&A advisors will make a transaction happen when it would fall over otherwise- they can and should maximise return for ALL parties not just the seller. I must be honest, they wouldn't be my first port of call. But everyone to their own. As long as you were happy with your eventual outcome.
Bad corporate advisors take a lot of fees.
Their are a LOT of the latter and not so many of the former- indeed even within one company you find a large variance (a bit like solicitors).
Advising on M&A is nothing like accountancy (for exampled)- M&A is much more an art than a science, and the skills needed to push a transaction for completion are very varied - Accountants tend not to make good M&A advisors (and I speak as a part qualled accountant!)
P.s. OP from your offer I would presume the business makes EBITDA of between 225 and 300k per year- if the business makes significantly more than this then I would suggest your valuation is out, which is likely to cause problems (ie your shareholders will thing you are taking the piss- which is entirely counter productive).
Have you thought about how you will fund the transaction?
Have you remembered that the exiting shareholders will need to receive Divs?
Have you financially modelled the future of the business?
Consider the structure of the transaction- should you be setting up a NewCo over the top of target for example?
Have you thought about how you will fund the transaction?
Have you remembered that the exiting shareholders will need to receive Divs?
Have you financially modelled the future of the business?
Consider the structure of the transaction- should you be setting up a NewCo over the top of target for example?
PugwasHDJ80 said:
Good Corporate M&A advisors will make a transaction happen when it would fall over otherwise- they can and should maximise return for ALL parties not just the seller.
Bad corporate advisors take a lot of fees.
Their are a LOT of the latter and not so many of the former- indeed even within one company you find a large variance (a bit like solicitors).
Advising on M&A is nothing like accountancy (for exampled)- M&A is much more an art than a science, and the skills needed to push a transaction for completion are very varied - Accountants tend not to make good M&A advisors (and I speak as a part qualled accountant!)
I totally agree, I have carried out 3 acquisitions myself whilst building my company.Bad corporate advisors take a lot of fees.
Their are a LOT of the latter and not so many of the former- indeed even within one company you find a large variance (a bit like solicitors).
Advising on M&A is nothing like accountancy (for exampled)- M&A is much more an art than a science, and the skills needed to push a transaction for completion are very varied - Accountants tend not to make good M&A advisors (and I speak as a part qualled accountant!)
I was concerned with the OP's approach and attitude toward his boss. Softly softly is the way and both parties have to be happy with the out come.
Advice in various forms taken on board and thank you for the posts. Meeting planned to discuss next steps tomorrow evening and see if we can't look at the amicable but in one go move.
Intention is to first discuss the funding of total buyout (circa £1.5M) and then what to offer as a dividend incentive over a few years.
The ultimate issue shared by myself and others senior in the business is that, without this move, the business is maxed out and we can see so much room for growth by cost cutting and development of other areas linked to the core business activity.
If people are interested, will post on progress.
Intention is to first discuss the funding of total buyout (circa £1.5M) and then what to offer as a dividend incentive over a few years.
The ultimate issue shared by myself and others senior in the business is that, without this move, the business is maxed out and we can see so much room for growth by cost cutting and development of other areas linked to the core business activity.
If people are interested, will post on progress.
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