Anyone ever structured a purchased by offering current management a buy-in?
June 25, 2024
by a searcher from Sophia University in The Woodlands, TX, USA
Hey guys,
I'm considering an acquisition of a $3mil equipment manufacturer. 20+ year-old business, seasoned employees (Union Shop).
I will soon be starting the financing piece of the puzzle and got to wondering about creating ways I can acquire the financing and also retain top talent (2 separate issues, but still it got me thinking....).
As a potential option to A) Boost my down payment and B) Secure the current key talent has anyone ever structured an acquisition whereas you solicit/offer the current management a buy-in opportunity? Similar to an MBO/MBI structure I believe.
Specifically speaking- (with seller consent) , I'm considering approaching current management and offering them minor ownership in the company in exchange for financing a portion of the acquisition.
Thoughts? I'd appreciate any input. Thanks
in Montreal, QC, Canada
- Pre-closing, the seller gives his own equity to top management to mitigate the risk for the acquirer. This equity is then rolled out into the deal. The main thing to be aware of is that the capital structure pre-closing and the capital structure post-closing are going to be very different, hence changing the value of the equity : pre-closing, mngt receives 2% of the equity and post-close the amount in $ could be 5 or 10% because of the added debt to the final capital structure.
- Seller sells 100% and mngt buy in with you in the equity stack, usually common shares. In addition, you can also build a management package with vesting and ratchet to make sure everyone is aligned.
from New Jersey Institute of Technology in Cumming, GA, USA
Broad Employee Participation: Tax Advantages: ESOPs can offer significant tax benefits for both the company and the selling shareholders. Retention and Loyalty: Employees with an ownership stake are more likely to stay with the company and be committed to its success.
Complex Negotiations: Structuring the deal and negotiating terms with management can be complex and time-consuming.
Potential Conflicts: Differences in goals and expectations between you and the management team could lead to conflicts.