How Equity Firms Execute Leveraged Buyouts
Private equity firms like the Carlyle Group, Kohlberg Kravis Roberts and many others have made huge returns for investors through leveraged buyouts. Using financial engineering and a lot of debt these firms buyout companies with little money down. While these types of transactions create spectacular returns for investors, they often shortchange the seller and management teams that drive the business. Thankfully, owners and management can now use these same financial tactics to buy and sell their business and have the benefit accrue to them...via a Management Buyout.
How Most Management Buyouts are Done
Private equity firms do hundreds of buyouts a year. Their typical approach is to offer to buy a controlling stake in a company using leverage they obtained from banks based on the financials of that company. Often times these firms commit very little of their own money to purchase the business. With little cash invested, these deals create spectacular returns for the buyout firm.
Buyout firms also collect large fees up front, as well as additional advisory fees while operating a company they've acquired, and a big share of the investment profits. The average annual management fee to do business with a private equity firm is about 1.5% to 2.5%. The average share of profits is about 20%. While buyout firms give management ownership, it’s usually less than 20% of the company. This type of buyout is the most common and is typically called a Sponsored Leveraged Buyout, where the equity player is the “Sponsor.”
Lantern Capital Advisors Specializes in Non-Sponsored Management Buyouts
For financially healthy businesses, there is another approach that utilizes the same financing techniques the equity firm uses for a buyout, but management gains operating control. In fact, management can end up owning 85% to 100% of the Company depending on the situation. These types of buyouts are called Non-Sponsored Management Buyouts and Lantern Capital Advisors specializes in executing these types of management buyouts.
Key Requirements of Non-Sponsored Management Buyouts
Lantern’s clients are companies that typically have the need to raise capital, complete a business plan, or understand their financial strategy or financing alternatives for one of the following reasons:
