BUY-OUT OFFER
Corporate Buy-out - Selling Shares - Forced to Sell - Buying out Shareholders - Buying into Company
Contact Neufeld Legal PC at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com
When you target a particular business for acquisition, the buy-out offer is a critical first step in initiating the acquisition process, as it establishes the parameters upon which you are seeking to buy-out the current ownership for their controlling interest in the business, such that you assume ownership and control. Yet, the significance of a well-designed buyout offer (letter of intent), that seeks strategic legal concessions, is far too infrequently sought, such that buyers are all too often conceding important opportunities, which are difficult, if not impossible, to negotiate after the buyout offer has been submitted to ownership of the target company.
The significance of considering various strategic commercial and legal aspects, and where appropriate, integrating it into the buyout offer, can prove particularly valuable, especially from a financial standpoint. Yet, to realize such opportunities, one needs to undertake the advance work with the right set of legal and financial professionals, such that it forms part of the buyout offer, where it is most likely to form part of the ultimate business acquisition.
This must be combined with the establishment of the proposed purchase price, which is dependent upon a range of factors that are tied to the purpose of the buy-out and how the purchasers intend to profit from the acquisition of the target company. Ownership desire/needs to sell the business plays a significant role in determining an appropriate purchase price proposal, together with structuring its payment, in part, over an extended period of time (or under alternate payment arrangements). This structuring should also form part of the buyout offer, given, that as with other arrangements, when they are sought after the buy-out offer has been presented, they all too often require serious concessions from the purchaser, which will ultimately increase the cost of the business acquisition.
The framework for the buy-out offer is further driven by the foundation upon which the buy-out is being sought:
-
Management Buyout: The company's existing management team acquires a controlling stake from the current owners. This often comes about when management perceives disinterest within ownership to putting in the time and commitment with advancing the business, and instead shifting their focus towards other pursuits, such that in advance of the business starting to dissipate or ownership seeking an external purchaser, management seeks to acquire the business internally. Management might also seek to acquire the business when unfortunate circumstances make it necessary for new ownership to assume control including the business owner's death, permanent disability / terminal illness, necessitated or forced departure, or the business' financial faltering and/or collapse [more on management buyouts].
-
Unsolicited Competitor Buyout: When a competing business wishes to acquire its competition or is looking to expand into a new territory or build on synergies that might be realized by acquiring a business that expands its own product and/or service offering, it might look to propose a buyout of the current ownership. This might be driven purely by the perceived commercial opportunity that can be realized through the proposed business acquisition, or the target company's ownership might be exuding signs that it wants to or needs to sell, such that it might be a prime opportunity to present an unsolicited buyout offer [more on unsolicited competitor buyouts].
-
Private Equity Buyout: Prime equity firms often seek to acquire a controlling interest in target companies where they perceive the opportunity to improve the target company's performance and sell it for a significant profit in a few years. Private equity firms proceed with a strategic plan aimed to maximize their investment return, oftenetimes undertaken by way of a leveraged buyout, which is either realized from the target company's ongoing profits and/or upon the execution of their exit strategy, which is achieved by way of:
-
Strategic Sale: Selling the acquired company to a larger corporation in the same industry.
-
Initial Public Offering (IPO): Elevating the acquired company to the point that it might sell shares to the public on a stock exchange.
-
Secondary Buyout: Selling the acquired company to another private equity firm.
-
-
Soliciting External Buyout: When the existing ownership wishes to pursue other life pursuits, such that they are seeking the optimal financial opportunity from divesting their current ownership interest, especially where there is existing external interest in their business (or commercial sector), they may look to carefully place their business on the market and solicit prospective purchasers. Life and business circumstances, including the business owner's death, permanent disability / terminal illness, necessitated or forced departure, or the business' financial faltering and/or collapse, might also precipitate the need for ownership or its representatives to actively solicit an external buyout.
-
Employee Buyout: This tends to be driven by ownership, as the structure takes considerable time for ownership to divest a considerable stake of ownership to the employees, while the contractual arrangements stymies the potential for competing buyouts. The present opportunity available through employee ownership trusts reflects the structural value of an arrangement that effectuates employee ownership.
The value of advanced planning and the engagement of an experienced legal professional in developing and presenting a buyout offer cannot be overstated, as its financial significance can be considerable. The opportunity for strategic planning is best undertaken prior to putting forth the buyout offer, with the degree of pushback and negotation often providing invaluable insights that can be applied to the buyer's advantage.
For knowledgeable and experienced legal representation when initiating a corporate buy-out, from the analysis and development of a buyout offer, through to the completion of the business acquisition, contact corporate business lawyer Christopher Neufeld at Chris@NeufeldLegal.com or 403-400-4092 / 905-616-8864.
