Buying A Company ? B I M BO Strategies for A Canadian Leveraged Buy in and ( MBO ) Management Buyout

Buying a Company Using Its Asset Base and Cash Flows


Information on the leveraged buy in and management buyout strategy (MBO) for Canadian Small and Medium Size businesses in Canada



B I M BO? Don't panic... it’s not what you think. That’s the acronym that the finance folks use for whats known as ' Buy in Management Buy Out ' for business owners and management who are contemplating purchasing their own or an existing company. Let's look at MBO 101 with a focus on helping small and medium sized businesses in Canada who don’t necessarily have access to the resources and talent to properly complete such a transaction on their own.

We're quite sure that hundreds, perhaps thousands of business people in Canada are at any one time contemplating purchasing their own firm, or one in which they have targeted or are associated with . Larger corporations of course have access to tons of talent with respect to lawyers, advisory firms, etc when they contemplate this type of deal. Typically we open the business news page and see headlines announcing such purchases that have either been done behind close doors or sometimes catching one of the parties totally off guard.

Let's focus on some core basics that small firms in Canada can focus on when it comes to a management buyout or leveraged buy in.

As a business person considering an MBO focus initially on two concepts, debt and equity. In spite of the negative connotations of ' debt ' you can still acquire a firm in a very successful manner by using a combination of either bank loans or other asset based debt that use the assets of the company . Just make sure of course that the right amount of due diligence is done of making sure that you can meet any interest and loan payments out of the cash flows of the on going business! That can't be overemphasized!

By using just a small amount of equity, either your own new equity or existing equity in the new business going forward you are able to leverage a great transaction... as long as your new debt to equity ratio is still reasonable. Debt to equity ratios vary by industry ... a very typical debt to equity ratio for a manufacturing type company is 2:1.

When you get overly aggressive on debt in the excitement of finalizing your transaction you of course run the risk of a business failure. In a perfect world (and trust us, we know its not) you end up with a solid management team, a reasonably financed firm, and lots of potential for profit and growth via new synergies of management, etc.

Business people should also be considering at an early stage how they someday will exit from the transaction. They often see a huge return in the future on the risk and capital they have put on the table, but need to understand how that will ultimately be monetized.

The bottom line - MBO... Our ' management buyout ' or leveraged buy in is often a fabulous opportunity for managers and owners to take advantage of a great business opportunity based on their skills, knowledge, etc. Using assets already in place allows you to capitalize on a great opportunity. Just think of it, you have used the assets of an existing company to pay for it. That’s sometimes called ' bootstrapping’

So, can a great BIMBO strategy work? Absolutely, and it can be financed via a bank, asset based lender, private equity firm or some other more esoteric types of financing. Speak to a trusted, credible and experienced Canadian business financing advisor for help with your BIMBO!!





Stan Prokop - founder of 7 Park Avenue Financial -

http://www.7parkavenuefinancial.com


Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing .Info re: Canadian business financing & contact details :


http://www.7parkavenuefinancial.com/leveraged_buy_in_management_buy_out_mbo.html

Get Unstuck On Funding Your Management Buyout ! Financing A Canadian Leveraged Buy In Practically

Proposing A Management Buyout ?


Practical advice on funding a management buyout in Canada . Financing a Leveraged buy in via asset financing strategies .




Successfully engineering and completing the funding of a management buyout via a leveraged financing is a challenging issue for Canadian business people and financial managers who wish to complete a buy in financing to a company they are associated with.

Let’s examine some practical tips and strategies for getting ' unstuck ' on a transaction such as this.

The best ' tool ' you have in an LBO /MBO type deal is of course the seller’s financial statements. That's where it all begins. While year end statements are a must it goes without saying that interim financials help you piece together and complete the story as ' up to date '.

Purchasors and your financiers will want a proper representation of specific assets and liabilities on the balance sheet. Great care should be taken in qualifying key assets such as accounts receivable... from a simple point... are they collectible?!

Naturally there is no guarantee that any existing or future A/R item will in fact be collectible, and no one is going to guarantee that for you. Some solid credit checks on the quality of the A/R base is highly in order, as well as looking at historical payment trends of the client base. You also want to ensure there is no right of set off against the receivables, and it certainly not uncommon for us to see the A/R as often the largest asset on the balance sheet.

A great strategy for Purchasors contemplating a leveraged management buyout funding is to make some sort of agreement on the ability to ' rejig ' the final price subject to A/R collectibility. Naturally owners of the company might be reluctant to do that.

Is there anything trickier than ' inventory ' with respect to classifying quality and true value of inventory, which might of course be raw materials, work in process, or finished goods. Make a solid effort to quantify the quality of the inventory you are purchasing with respect to issues such as obsolescence.

Plant and equipment should always be appraised in some manner on funding a management buys in. This quite frankly protects all parties, and we urge clients to complete an appraisal that includes some component of fair market value, orderly liquidation value, and forced liquidation. Those numbers will vary significantly in any appraisal and play a key role in the way in which assets are financing in a real management buyout. It goes without saying of course that the purchaser should ultimately be comfortable with the quality and condition of the fixed assets on the balance sheet they are contemplating financing.

Don’t forget also to look any leases or contracts that might be in place via the current business owner. You will want to make sure these are assignable to yourself in the event of a completed sale.

In Canada you can complete a successful funding of a management buyout via an asset based lender, or a private equity firm. A great deal occurs when you have a company that is both profitable and has key assets that are financeable, i.e. the receivables, inventory and equipment we highlighted earlier. Speak to a trusted, credible and experienced Canadian business financing advisor for assistance in successfully completing you buy in via a leveraged funding.




Stan Prokop - founder of 7 Park Avenue Financial -

http://www.7parkavenuefinancial.com


Originating business financing for Canadian companies , specializing in working capital, cash flow, asset based financing . In business 7 years - has completed in excess of 80 Million $$ of financing for Canadian corporations . Core competancies include receivables financing, asset based lending, working capital, equipment finance, franchise finance and tax credit financing .Info re: Canadian business financing & contact details :


http://www.7parkavenuefinancial.com/funding_management_buyout_buy_in_leveraged.html