Buyout Teams Take Initiative

By Andrew Wheeler, Partner at Luminar International (Australia)

The Luminar acquisition model is designed that all parties end up with a win-win scenario.

In my conversations with retiring business owners I often see their preference of the Luminar acquisition model of a controlled succession rather than a hostile type acquisition.

I recently reported on an amazing dynamic that transpired in an acquisition deal even before the transaction was completed.

During the acquisition process and at the stage when key terms with the retiring vendor as well as the formation of the Buyout Team and the individual managers’ equity allocation had been agreed, the managers became aware of the attractive opportunity that was presented to them whereby all they were required to do was maintain business earning levels already achieved by the business. By maintaining these earning levels over the Deferred Consideration period they would generate substantial personal wealth. In a typical acquisition the Deferred Consideration period is generally three to four years. Any growth in earnings results in higher wealth in a shorter period for all parties.

In one of our conversations the retiring business owner was excited that two of his long standing loyal employees, who were part of the Buyout Team, all of a sudden had made recommendations to him that resulted in improved profitability. The vendor also reported that these new initiatives would secure the ongoing business of a large long standing client of the company.

The owner of the business was amazed how the mindset of these managers had changed almost overnight now that they were to have “skin in the game” rather than just being employees.  

The above is illustrative of the human nature that if members of staff have a large incentive as part owner that the business, then they will achieve optimum results.

Furthermore, the risk profile of a business is mitigated when the following occurs:

• Exiting vendors retain a small rollover equity piece. All their skills and contacts are not lost but are retained post-acquisition
• A comprehensive, capable and enthusiastic Buyout Team is formed and, with Luminar onboard, a new high level dynamic is added of pro-actively overseeing the business with pre-determined Covenants and Key Performance Indicators

The philosophy applies that if a well established business is pro-actively managed by a diversified team, the chances of it failing are substantially reduced.

Retiring Business Owners Need Not Struggle to Sell Their Ventures

In the article, Shortage of Buyers for Retiring Vendors, in The Telegraph of 13th December 2010, Richard Tyler talks about difficulties that business owners encounter when they are looking to sell their businesses and retire.

He says that vendors struggle to find buyers for their ventures due to the uncertain economic environment and face closing their businesses instead or continue running their firms into their late 60s. Staff may also find it difficult to raise the necessary finance to buy owners out because of bank lending policies.

Although potential investors might not pay the multiples that we saw only 3 or so years ago, there are a few things that baby boomers can do to ensure their comfortable retirement:

• Business owners ought to start looking at Exit Strategies early in the process. This will allow them to set their goals and targets and monitor their business's performance
• Set realistic expectations in terms of the price they want for their businesses. When selling a business, most owners will engage the services of their accountants and business brokers. We often see overinflated prices whilst bidding wars commence; however, it is the seller that is left disappointed in the process as their business "sits on the shelf" for months or sometimes years
• Get an independent valuation carried out early as it will give retiring business owners a better understanding of the areas they may need to improve
• Vendors may want to consider selling their businesses to staff and should involve their existing management teams in advance to avoid a bitter disappointment when their staff cannot come up with the cash
• Engage professional services: business disposal experts, such as M&A lawyers, corporate finance specialists and business advisers will add value and help owners to get closer to their target price
• Review and streamline processes and systems in the business to make it more attractive to potential buyers. After all, investors would be more willing to pay the price closer to what the owners have in mind when the business is running "itself"
• There is also another option available to retiring business owners: Deferred Consideration. It is often more beneficial and profitable when part of the money is deferred for 3-5 years. The sellers will get part cash up-front and the remainder at the end of the term. This will remove the pressure on the buyer to raise the whole amount up-front, raise more confidence in the business they are looking to buy and make the transaction much easier

If you are a Business Owner and thinking of retiring and selling your business, then CONTACT US to learn more about how you can benefit from working with Luminar International.

http://www.luminarinternational.com/

Luminar International: An Insatiable Appetite to Buy Businesses from Retiring Owners Worldwide

Luminar International announces the launch of its unique proposition to acquire established and successful lower to mid-market privately owned businesses from vendors worldwide who seek to retire and exit commercial life.

The world’s only private investment firm, already operating in a number of developed and established markets, such as Australia, UK, EU and USA, has developed a business acquisition model that offers genuine retiring vendors a solution to selling their businesses swiftly, painlessly and profitably. Because Luminar International buys businesses directly from business owners without involvement of third parties, it provides vendors with a simple, yet efficient and effective way to realise the value of their lifetime’s work without the need to incur additional time in searching for buyers or intermediary costs. This offering makes Luminar International a number one destination for business owners who look to sell their businesses and enjoy retirement in comfort with a peace of mind that their business is well looked after.

Here are some of the key criteria for the businesses that we acquire:

• Established, stable and successful business with EBIT (Earnings Before Income and Tax) of at least $1M or local currency equivalent per annum
• Genuine Retiring Vendor: business owner(s) who are looking to exit commercial life

If you are a Business Owner and thinking of retiring and selling your business and your venture fits the above key criteria, then CONTACT US to learn more about how you can benefit from working with Luminar International.