Small Business Proposed Management Buyout
Challenge
The Founder of a B2B distribution business passes away after a long illness and the ownership is placed in a Trust for the benefit of surviving members. After several years of running the operation, the Trustee approaches the two senior managers to determine their interest in buying the company.
Solution
GCA was introduced to the management team by their banker and was engaged to help them negotiate the purchase price as well as fund the acquisition. After several attempts to piece together a financing that included an SBA loan coupled with seller notes, although this would have accomplished the objective, the new owners would be spending the next five years paying down debt and limiting the future growth of the business.
After a long discussion with the management team, it was decided to change direction and bring in a third party that ultimately provided 95% of the funding. Although management ended up in a minority position, they do have the opportunity to gain control over the five years following the acquisition. Management contributed 5% of the capital but 35% of the ownership at closing and operating control of the business. After the acquisition, management opened additional locations and are now eyeing acquisitions with the plan to triple the business within five years.