MANAGEMENT
BUYOUTS.CA
The MBO Specialists
ABOUT US
The managementbuyouts.ca team has decades of experience in mergers and acquisitions including structuring, negotiating and financing Management Buyouts or MBOs.
Managementbuyouts.ca is dedicated to assisting experienced management teams (and business owners) to successfully structure, negotiate, and complete Management Buyouts or MBOs of private companies or divisions of publicly-held companies in Canada resulting in the management teams acquiring ownership of their companies or, at a minimum, owning meaningful equity stakes in such companies.
Do you want to explore the possibility of a Management Buyout or MBO of your current company?
MANAGEMENTBUYOUTS.CA
“The MBO Specialists” may be able to help.
MBOs
What is a Management Buyout or MBO?
Management buyouts (“MBOs”) are acquisitions of an operating company or a corporate subsidiary or division in which the current and/or future senior management of the business participate as a significant equity partner in the acquisition. MBOs are essentially leveraged buyouts in which managers of a company, subsidiary, or division acquire the operations from the parent company or owner either alone or in partnership with a private equity investor and by utilizing some leverage in the form of senior debt, subordinated or mezzanine debt, and/or various forms of vendor financing.
Generally, MBOs are appropriate in the case of relatively mature businesses with reasonably predictable cash flows and they attempt to build enterprise value through operating improvements that increase cash flow or strategic acquisitions that increase market share or revenue growth.
While MBOs are generally capitalized with varying degrees of leverage reflecting the risk profile and growth prospects of the underlying business, it is generally more prudent to employ a reasonable level of debt and a prudent capital structure in an MBO.
The motivations of management teams engaging in an MBO are generally tied to management’s desire to control their own destiny and to share in the company’s future equity upside and to avoid a sale of the company to unknown and perhaps unfriendly new owners.
A properly structured MBO, which creates a commonality of interest between an appropriately incentivized management team and a private equity investor, goes a long way towards ensuring a successful transaction.
Criteria for Successful Management Buyouts or MBOs:
Outstanding management is the first and most important criteria for a successful Management Buyout or MBO. Successful Management Buyouts generally exhibit some or all of the following characteristics:
A capable and experienced management team with skills in a variety of functional areas, including operations, sales and marketing, and finance who have a significant personal stake in the success of the company or management buyout transaction;
Demonstrated market acceptance of the company’s products or services with a minimum 12-month trailing revenue of at least $50 million which is growing at a rate of at least 10% per annum;
Optimal (and prudent) capital structure and a sound, long-term growth strategy (both organically and through acquisition);
Profitable or generates free cash flow (after adjusting for investment in growth);
Industry leadership or niche business focus with tangible or intangible barriers to entry;
A recognized or dominant brand and/or significant market share;
Low cost supplier or producer in the industry;
A sustainable competitive advantage over competitors; and
A solid performing company in a fragmented industry where there is potential for industry consolidation (i.e. a leveraged build-up strategy).
Do you wish to explore the possibility of a Management Buyout or MBO of your current company?
MANAGEMENTBUYOUTS.CA
“The MBO Specialists” may be able to help.
To
BUSINESS
OWNERS
To
BUSINESS
OWNERS
Why would a Business Owner want to sell to Management via an MBO?
Confidentiality and Secrecy.
A full-scale auction exposes the company’s confidential and proprietary information to a broader audience (including strategic buyers such as competitors) during the sale and due diligence process. The existence of the sale process may also become publicly known and this may potentially adversely affect the company’s strategic and competitive position if a transaction is not ultimately consummated. Selling to management is better suited to preserving confidentiality.
Continuity and Preservation of Your Company’s Legacy.
A broader sale process creates uncertainty amongst employees, customers, and suppliers and may lead to an erosion in the value of the company if the sale process becomes protracted or does not lead to a transaction. In contrast, an MBO reduces the disruption associated with an auction and provides for continuity of management and preserves the legacy of the company by leaving it in the good and capable hands of current management.
Unique Challenges in effecting a Traditional Sale during the COVID-19 Era.
Successfully completing a traditional sale process to strategic buyers (such as competitors) or financial buyers (such as private equity firms) may be more challenging during the COVID-19 era. Management Buyouts can still be completed even if you might otherwise have or will have additional difficulties and challenges in effecting a sale via a more traditional sale process during the COVID-19 era.
Timeliness.
An MBO transaction can sometimes be completed more quickly than a sale to a third party through a full-scale auction handled by an investment banking firm.
Lower Investment Banking Fees.
A management-led buyout may enable the vendor to avoid investment banking fees that may potentially be about 2 percent (or more) of the enterprise value of the transaction.
Potential Retention of Some Upside.
The vendor may potentially be able to retain a small portion of the upside if the company is sold to management, something that may not be available in the case of a sale to third parties.
Are you the owner of a small or medium-sized business or SME who wishes to exit but has concerns about the risks inherent in disclosing confidential and proprietary information to potential buyers (including competitors) during the sale process?
Do you want to preserve the legacy of your company by leaving it in the good and capable hands of your current management team?
Are you the owner of a business that has been unable to successfully complete the sale of a business in a traditional sale process to strategic buyers (such as competitors) or financial buyers (such as private equity firms)?
Are you the owner of a business that faces possible closure or liquidation and/or an inability to effect a sale, which may have been exacerbated by the COVID-19 pandemic?
A Management Buyout or MBO involving a sale of your business to your current management team may be the answer.
MANAGEMENTBUYOUTS.CA
“The MBO Specialists”
may be able to help.
To
MANAGEMENT
TEAMS
To
MANAGEMENT
TEAMS
Why would a Management Team want to complete a Management Buyout or MBO?
Management Controls its Own Destiny and Shares in the Equity Upside.
Management acquires the opportunity to control their own destiny and shares in the company’s future equity upside as well as avoiding a sale of the company to unknown and perhaps unfriendly new owners.
Strategic Insights.
Management knows how the policies of the parent company may be placing constraints on the business. They also know where they can cut costs or move into new strategic directions. Management is in a better position to recognize these strategic opportunities than third party buyers.
Intimate Knowledge of the Risks, Rewards, Challenges, and Opportunities.
Management has intimate knowledge of the challenges faced by the company and what opportunities can be exploited. This gives them a tremendous edge over third party buyers.
Loyalty of Employees.
A Management Buyout will generally have the support and loyalty of the company’s employees who will often be newly energized and highly motivated to make the MBO succeed.
Are you a management team interested in a Management Buyout or MBO of your current employer but are being held back by a perceived lack of capital or a lack of familiarity with the MBO process?
Do you want to explore the possibility of a Management Buyout or MBO of your current employer together with your management team colleagues?
Can a management team still successfully complete a Management Buyout or MBO of a small or medium-sized business or SME in a Canadian market characterized by limited (or, in some cases, potentially unavailable) private equity capital for such a transaction?
MANAGEMENTBUYOUTS.CA
“The MBO Specialists”
may be able to help.
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MANAGEMENT
BUYOUTS.CA
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