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Investment banking: Buy the company you manage

By Bob Hodgson

You are the envy of most of the population in this great country by being able to live and work in beautiful Branson, Missouri. You may at some point suspect the owner of your company will be retiring and exiting the business. You realize that owning a private business is every manager’s dream, but you have no clue as to how to accomplish this and obtain the necessary capital.

Bob Hodgson. (FILE)

A management buyout (MBO) is an acquisition where a company’s existing management acquires the company. The management will not usually have enough money available to buy a company so other financial sources are sought through an investment bank.

An investment bank is retained to assess, establish and negotiate a fair deal value. They will have primary responsibility to assure the deal moves forward to completion. They will also arrange financing that will fit the needs of the management team. There are many financial choices and structures such as:

A. Using the company assets and accounts receivable as collateral to obtain debt financing.

B. Acquiring permanent loans, mezzanine loans, bridge loans and non-recourse debt.

C. Acquiring private equity partners.

Private equity firms have hundreds of billions of combined dollars available to acquire companies with solid management in almost every industry. They will invest with management and provide incentive programs that will increase management’s ownership. Private equity firms will let the current management run the company and provide capital for expanding the company.

An investment bank has first-hand knowledge of the private equity firms that would be interested in your type of industry and company size. There are approximately 3,000 firms available for these transactions.

Selling to a management group is often the most desirable type of ownership transfer. Management buyouts provide continuity and stability. Owners of a company will give priority to a management group. Management buyouts are appealing to professional managers because it offers greater potential rewards from being owners of the business rather than being employees.

Company owners want to pass their company on to a highly capable management team. The owner has worked very hard and taken pride in his company and what has been accomplished. He wants to put a proud smile on his face and maintain a sense of accomplishment when he drives past the business that he once owned and nurtured.

Amvest Financial Group is a leading international investment banking firm based in Kansas City representing clients with sales from $10 million to over $6 billion. www.amvest.com

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