Acquisition Advisors | It’s an Optimal Time for a Management Buyout
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01 Dec It’s an Optimal Time for a Management Buyout

If your company’s earnings have not suffered greatly during the recession, now might be the very best of all times to execute a management buyout. Buyers are out in mass and paying premiums for companies that have performed well during the recession.

We did not see this coming but Premiums are being paid for companies that are selling today. Companies that would have topped out at five or six times EBITDA three years ago are going for seven, even eight today.

The logic is simple — an imbalance of supply and demand.

On the supply side there are very few companies in play today. Most businesses have performed poorly during the recession and their owners are not proud of the financial performance. They know the time to sell is when profits are high.

On the demand side, the number of buyers has not declined from where it was three and four years ago. The numbers of individual buyers has held steady, maybe even increased. The number of industry (“corporate”) buyers has declined only slightly. The number of private equity groups has held steady and they’re more aggressive than ever.

The result is a huge imbalance between supply and demand that dramatically favors sellers. Lots of buyers picking over few quality companies available today. Buyers are paying, and sellers are receiving, premium prices. It’s times like these that deals get done. Business owners that wish to transition out at maximum value have, potentially, a window of opportunity here that might last a year.

The good news for management teams is that the most active buyers today are the private equity groups. They typically want and need existing management teams to stay in place. To continue to run the company. They typically will give existing and proven management teams stock options that will, in effect, give the managers a “piece of the action.” And in cases where a manager or managers owns a part of the selling company (or has other cash available to invest in “newco”), the manager can earn a nice payday and also roll some of his or her equity back into ownership in the business. Invest alongside the new investor at attractive rates. Most private equity groups welcome this — even encourage it.

Amazingly, today is a great time to get deals done. Whether it’s the business managers putting a deal together to buy out their owner or the owner working to cash out but wishing to place his loyal and tenured managers in an enhanced position going forward, today’s as good a time as there will ever be.

For assistance, call Acquisition Advisors today at 918-748-7995. Ask for a dealmaker.

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