|
|
|
|
How Do You Move From Employee To Entrepreneur?
In the film "Dead Poets'
Society", Robin Williams plays a gifted and dedicated teacher
determined to help his students appreciate the age-old adage Carpe Diem
or, seize the day. This phrase captures a major theme in the film and in
life: make the most of your existence and don't let opportunities pass
you by. Keeping this advice in mind, many ambitious business managers
have decided to seize the day by making the transition from employee to
employer. For several of these individuals, the best way to do this is
to initiate a management led buyout and take over the companies they
work for.
Being an entrepreneur is not for the faint of heart. Amongst a group of
10 young managers or professionals, statistics tell us that only one has
what it takes to be a business owner. I am sure that many people aspire
to be entrepreneurs. This is their opportunity.
What separates entrepreneurs from dreamers is their ability as
individuals to invest somewhere in the vicinity of $250,000 into the
companies they hope to own. This number can be as high as $1 million in
some of the larger deals. If you want to own something, you have to put
your money and likely your job at risk. If you are unable to put your
money on the table, stop dreaming.
A substantial financial investment is critical for a serious management
buyout because outside investors, institutional or private need to know
you are committed. Investors who will personally support a management
team or make a company investment are almost always required and
strongly recommended. Institutional investors request private investors
that have some management background or special knowledge in the
industry to co-invest with them. Institutions refer to these investors
as the "smart money." If something goes wrong or an important
decision needs to be considered, the institutional investor wants to
have some other intelligent investors as part of the deal to help them
work the issues out.
To ensure the success of a leveraged acquisition it is extremely
important to establish an appropriate capital structure. You will need
to understand and present your written business plan detailing
seasonality, cash flow cycles, capital expenditure requirements and
other such factors.
Some preferences presented by lenders when financing a buyout include:
companies that are not highly cyclical and have steady predictable cash
flows; companies with low capital expenditure requirements and high free
cash flow; growth businesses, especially in high valued-added
manufacturing; and companies with strong committed management teams and
well communicated, compelling business plans. Meeting these requirements
can be a challenge for company employees, managers or executives.
For those unaware, management buyout opportunities present themselves
often and for a number of different reasons. The first and most common
reason is that a company or division no longer fits within the strategic
aims of the parent group or owner. Another reason may be that the parent
group or owner simply requires liquidity or cash. Or, profit levels may
not be considered acceptable, or the company is showing a loss.
Other reasons include a private owner who wants to sell his business and
not bother with the complicated process of selling to an outside buyer.
Usually this seller has a very good relationship with the management
team and has confidence in their ability to manage the business. This
type of owner usually retains some equity ownership or assists in
financing the business with vendor take back notes.
Management led buyouts are generally regarded with great favour as they
provide corporations with a convenient alternative to the acquisition of
their company by an outside suitor, while at the same time allowing them
to avoid the conflicts that often arise between management and outside
buyers.
The entrepreneurial spirit is alive and thriving in Canada. Before
beginning, however, it is extremely important that management agree that
they have an arrangement amongst themselves (infighting is a major
reason deals fall apart), and that they enlist a professional and
experienced intermediary. This professional will help package the
opportunity, set up the process, structure the buyout deal, and
negotiate with financiers and ultimately the owners. And let's not
forget the legal, accounting, tax and other levels of expertise that
need to be integrated into the deal.
Maybe it is a fluke in the business cycle, but never in the history of
time has there been more diverse, abundant and less expensive investment
capital available chasing too few deals. There is no excuse for talented
management teams not to take hold of their future and at least attempt
to do a management buyout. Seize the day; use the opportunity of the
present moment to pursue your vision.
Copyright 2004
Mark Borkowski
Mark Borkowski is president of Mercantile Mergers & Acquisitions
Corporation, a mergers & acquisitions brokerages firm since August
1987 and has consummated over 80 transactions. He can be reached at (416)
368-8466 ext. 232 or via email at mercant@interlog.com
|
