Insights of a Maverick Investment Banker_Sample

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INSIGHTS OF A MAVERICK INVESTMENT BANKER acquire a majority or a large minority stake. (The better known MBO’s are actually rarer, as exits are more often catalyzed by the lack of inside succession management and the burnout of the founder.) Equity release or Recap. Often called: Dividend Recapitalization or “Recap”, an equity release allows the founders to take money out of the business in exchange for a large minority or small majority equity stake, financed by a combination of equity investments, bank debt, or mezzanine equity. Recaps are often followed by a subsequent transaction after three to five years when the investor would exit, giving the founder a “second bite of the apple”. Gradual Sale. These are last-ditch solutions for companies which are often not, or only marginally profitable, have no management to take them over, or promise low growth. In such situations, the main value is the market presence of the company and its offering. In order to create material equity value which can eventually be sold, an appropriately connected and competent management team is needed. In return for their efforts, and occasionally monetary equity, the incoming managers will get to ride a “horse”, i.e. will have the opportunity to take over the leadership of a mature company, which is often easier then to start a new one up. A gradual sale will only work if the parties trust each other. The seller will have to allow the investor to assume the reigns, and the buyer will have to rely on the seller’s assurances that he would not abuse his majority rights to deny the buyer’s share of the eventual profits, and to later allow the transfor of control at a pre-agreed price. Gradual sale works best in the case of intra-family, intracompany successions, or with reliable business partners. Winding Up. The final alternative to a sale is a winding up, where the sellers harvest the value of their company by selling assets and liberating working capital. 14
BUYER HUNTING This strategy will work for companies where there is no buyer who would pay for goodwill, or even the book value of the firm, while there are significant and monetizable working capital assets (sellable inventories, collectable receivables) tied up in the company. Such companies often operate without recognizable brands, at low margins, sometimes at the mercy of big box retail customers that pay them slow and require them to warehouse and take back unsold products. Importer-distributors of Far Eastern commodity consumer products often end up with this fate. 15
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