Management Buyout Engagements

  • Grand Avenue Capital Partners has been engaged by management in the buyout of the companies for whom they work. Management is in a privileged position given that they are typically the movers of the growth and success of the companies they manage. Frequently, the opportunity arises wherein management is allowed to invest into or take over the majority of the companies they manage. The following describes the process and Grand Avenue's role in such an engagement:
  • Generally, the controlling shareholders or the estate of the owners are notified that management wishes to acquire the Company. A “friendly” transaction is recommended. Management engages Grand Avenue on an exclusive basis to manage, and if necessary, finance the transaction.
  • Grand Avenue's involvement starts with a realistic assessment of the company’s current and projected performance. The Company’s growth plan is articulated and financial proformas are developed for benefit of the lenders (third party banks or vendors) and equity (if necessary) participants. Grand Avenue’s bankers test the following with management who wish to own the companies they run:
    • Is the business plan defensible and achievable? Often profit performance is planned to improve when a sales transaction occurs. The acquired entity will have additional capital constraints, debt, leery vendors, concerned employees who will have cost constraints placed on them by the new owners, etc. The management plan, post-acquisition must be realistic.
    • Will the new owners achieve the rewards for the new risks they are taking? Often personal guarantees will be required of the new management owners. Will this be acceptable? Are there secondary collateral sources to satisfy lenders providing new debt?
    • Will there be adequate capital to grow the business, given that the Company will be leveraged to pay off the old owners?
    • Do the new management owners have an exit plan of their own? Can this Company in the hands of newly energized management be grown to be an IPO candidate, or at least sold at higher valuation to strategic interests? If private equity assists the management to buy the Company, these new financial partners will be very interested in an exit….sooner than later.
  • On behalf of management, negotiations occur with the current shareholders as to major terms and conditions of the investment transaction planned by management. Timelines are proposed. A period of exclusivity is negotiated. If necessary, steps are taken to insure that during the period of exclusivity, the Company is operated without prejudice to the existing shareholders.
  • Grand Avenue bankers prepare compelling documentation for lender/equity participants. Strategic investors may be part of the prospective participant list.
  • Financial participants are contacted simultaneously, and Grand Avenue assists management in the determination of the preferred participants. Definitive transaction documentation is prepared by legal counsel and reviewed by Grand Avenue and management counsel. Equity incentives for executive management are negotiated. Management consulting contracts are sought for key employees.
  • The management buyout transaction is closed.