The time is right for a management buyout

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 both 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.

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. Many readers of the Canadian Mining Journal probably aspire to be entrepreneurs. This is your 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.

Management-led buyouts are generally regarded with great favour as they provide corporations with a convenient alternative to the acquisition of their company or mine by an outside suitor, 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 history 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.