How to Purchase the Company You Work For

/in , /by Exit Strategies

For many C-Suite employees, owning the company they work for would be a dream come true. If you’ve been leading a successful private business or are a seasoned member of its executive team, acquiring that business may be a realistic goal.  

Secure Funding

Typically, the biggest hurdle in buying a business is obtaining the cash/equity and securing the debt financing necessary to close the deal. The good news is that a healthy business is an attractive proposition for lenders and equity partners. You’ll need to demonstrate that the business has sufficient cash flow to service the debt and that you (and your team if applicable) have the skills and experience needed to lead the business forward. 

A commercial bank loan is just one potential debt funding source. For smaller businesses, the Small Business Administration (SBA) offers government-backed loans with favorable terms, including long amortization schedules and low equity requirements. In some cases, the current owner may be willing to provide seller financing for a portion of the purchase which, if structured correctly, could act as “equity” in the deal. 

An investment bank may be able to match you with private equity investors looking to support a management buyout.  

Leverage Private Equity

Using your own cash and traditional debt financing may work for a small deal. But to acquired a larger more profitable company you are likely to need a Private Equity (PE) partner. PE firms specialize in investing in businesses with strong cash flows, growth potential and a proven and committed management team. They can enable you to obtain a minority ownership stake and lead the company.

In this scenario, the current owner often leads the sale process with the goal of helping you gain an equity stake. There are literally thousands of PE firms out there, and with you as part of the management succession plan, the pool of potential investors expands.  Finding the right partner is the trick.

PE firms usually arrange the necessary debt financing and structure deals with an ownership stake for essential company leaders – through co-investment or some form of equity appreciation incentives. You may be able to put little to none of your own capital into the transaction and would likely not have to personally guarantee a loan.  

Approach the Owner

If you are interested in owning part of the company you work for, its best to be proactive. The key is to approach the owners early on with a genuine and well-developed interest in acquiring the business. Expressing interest years before the owner plans to sell is okay. There’s nothing unprofessional about asking to own some or all of a business you care about.  

Explain how your experience and leadership will ensure a smooth transition and continued success for the company. You may be best positioned to carry the owner’s legacy forward, maintain company values and culture, ensure customers are well taken care of, and keep the business in the local community.  

If the owner wants to retire soon, you may solve the management succession problem. Even if they’re not planning to phase out, they may see the benefit in offering you a minority stake and keeping you invested in the business long term. Having a strong leadership team with a stake in the company’s future success can be a significant selling point for buyers. 

Seek Professional Advice

Throughout the process, it’s essential to have experienced advisors in your corner. Engage an investment bank or M&A advisor to help with transaction and funding options. Consult an M&A attorney to navigate the legal aspects and an accountant to ensure that the deal is structured in a way that benefits both parties and minimizes potential tax implications. 

Your boss should have their own set of advisors, including an experienced M&A advisor and an attorney to protect their interests and ensure a fair transaction. 

Purchasing the company you work for is an exciting endeavor that requires careful planning, strategic funding, and a strong partnership with your current boss. Talk to your boss and, if they’re amenable, encourage them to consult with an M&A advisor. The right arrangement can enhance business value while providing you with the life-changing opportunity you desire.  

 

For further information on this subject or to discuss a potential business sale, merger or acquisition need, confidentially, contact Al Statz at 707-781-8580 or alstatz@exitstrategiesgroup.com.