Management
Buyout
An effective means for transitioning ownership.
A management buyout is a type of acquisition that enables a company’s management team to acquire a significant stake in, or the entirety of, the company from the parent or from private owners.
A management buyout can be attractive to managers because of the greater financial rewards when one is an owner of the company rather than solely an employee. Management buyouts are also an appealing liquidity option for owners who wish to transition out of a business and may not have a succession plan in place.
In this management buyout example, the owners are completely bought out. The management team increases their ownership stake from 15% to 60% and the sponsor obtains 40% of the company.
Typical size
- Senior debt: $10 million - $300 million
- Subordinated debt: $10 million - $100 million
Investment focus
- Middle-market companies with attractive growth prospects and positive cashflow
- Dedicated and cohesive management teams
- Minimum EBITDA of $8 million
- Generalist sector approach
Structural characteristics
- Senior debt, alongside junior capital, for a seamless, one-stop solution with a single, relationship-oriented capital provider
- Typical maturities: 3 – 25+ years
- Flexible payment structures, including amortizing or bullet, and fixed- or floating-rate
Issuer benefits
- Capacity to fund across your capital structure; a one-stop shop with senior debt, mezzanine or subordinated debt, and preferred equity
- Supportive, patient, relationship-oriented partner
- Deep pockets to provide follow-on capital to fund your future growth
- Specialty in mezzanine, which is a less dilutive type of capital
- Aptitude for understanding the complexities associated with your business
Partner Story
MOORECO
Greg Moore, President and CEO of MooreCo, sought a financial partner to support the management buyout of his company from Webster Capital as well as a recapitalization.
Working closely with Greg and MooreCo’s management team, we structured a one-stop financing solution incorporating senior debt, subordinated debt, and structured equity.
The management team opted to partner with us based on our long-term, relationship-oriented investment strategy, and ability to craft a one-stop financing solution that met their needs.
The completion of the transaction will enable MooreCo to explore future growth opportunities as well as strengthen its position in existing markets.
“Prudential Private Capital is engaged, involved, and knows about the business to the degree that my family did…That approach so far is building a foundation that’s going to allow us to execute in the future, and it’s with a patience on short term versus long term.”
Greg Moore, CEO, MooreCo
Benefits
When planning the next phase of your company’s growth strategy, management buyouts can be an appealing liquidity option for several reasons:
- Owners can be assured that the company will have a dedicated management team
- The due diligence process is likely to be shorter because the buyers have familiarity and working knowledge of the company
- Owners are able to reward management with an equity stake
- Owners can sell a controlling interest in the company without conceding confidential information to external purchasers
Alternatives
When you are determining how to transition the business to the next generation of ownership, and for family-owned businesses where transitioning ownership to a family member isn’t necessarily an option, there are two main alternatives: selling the company to an outside third-party (private equity firm, public market, strategic buyer) or selling the company to employees.
To learn more about an ESOP financing, hear from our partner, Hypertherm, on their journey to a 100% employee-owned company.
OUR PEOPLE
Patience is in
our DNA.
“One thing we know for sure is that growth will not be linear -- we know that it is going to come in stops and starts – and that is why patience is really key.”
JULIA BUTHMAN
MANAGING DIRECTOR
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