Management buyouts allow senior managers or family members to acquire the Company in the event of the owners' retirement, generational succession or health motivated reasons to sell the business., Management buyouts may be executed through conventional loan financing,  a vendor take-back loan, and additional equity support if required.

Management Buyout and Succession - Common challenges: 

  • Business know how is tied up in the owner’s knowledge
  • The asset base is largely good will without hard asset backing
  • Family, relationship dynamics
  • Financing feasibility determined at an early stage of planning
  • High leverage
  • Not enough equity
  • Management skill
  • Financing goodwill, intangible assets
  • Lack of vendor take-back financing
  • Transition / integration risk 
  • Lack of detailed financial forecasts
  • Protracted negotiations, difficulty closing
  • A turnaround or the business has experienced a difficult period
  • Restrictive advance rates, collateral security margin
  • Cannot meet pre-funding conditions

Solution

A complete understanding of the transaction is required to navigate the sale and financing process. In most instances, a multitude of approaches need to be considered, quantified, and evaluated in an efficient time window. The financing structure is a critical input to progressive buyout negotiations before a deal can be finalized and then, in turn, be proposed to a lender. Lenders will require an in-depth presentation focused on the key issues, management, and how business operations, cash flow, and assets can support the required debt structure. 

We identify the likeliest financing scenario, expected pricing, and most suitable lender(s). Building a lending case, we draw on our previous experience with management buyouts and succession structures and drill down into the details to ensure alignment with each prospective lender and solution.

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