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.