If you are the owner and director of your company and are between 40 and 55 years of age, you own a principle residence, a great car and a second home.
You want to benefit from your hard work and keep your business.
An owner buyout is destined for owners of safe and profitable businesses with good visibilty.
– It is necessary that the company regularly distribute dividends to the holding in order to pay back the loan, which was obtained for this, without compromising development targets.
– The loan repayment must not exceed 50% of the business’s profits.
An owner buy out is a set up which is carried out with the company owner, as part of an acquisition through debt.
The owner buyout is what we call a sale in two parts:
– The shareholding director creates a holding that will take 100% of the company’s capital.
– In doing this, the shareholding director gives the company’s social rights to the holding. They hold a part of the capital, either minority or majority, depending on their choice, most often with capital investors.
– Capital investors can be minority or majority; generally, they are minority as they want a return on their investment and not to participate in the management of the company.
– The payment of the company by the holding will be done by contribution of funds by capital investors and by the debt contracted by the holding.
– The shareholding director continues to manage their company and is the shareholding directors of the holding. In other words, the shareholding director remains the director and takes liquidity from the sale of some of some titles to the people entered into the holding’s capital.
– The shareholding director will be able to benefit from the capital gain/ goodwill of their company once they have sold their shares.
The common objective of the two parties is the development of the company in order to resell it in the medium/ long term. Generally, capital investors get involved for a minimum of 3 years (minimum for to get their investment back) and a maximum of 7 years.
The exit of the financial partner
Many exits are offered to the financial partner(s):
– Takeover by the proprietor with other financial partners (secondary leveraged buyout)
– Sale to an industrial group
– Initial public offering
Note that choices and conditions of exits are discussed and determined when the owner buyout is set up.
It is a process, which allows the shareholding director to:
– Change a part of their professional assets (the business) into personal assets (liquid assets) while continuing their business and remaining a prominent shareholder.
– To enter family members into the capital in order to prepare your company’s
– To enter other investors into the capital: colleagues, capital investors.
Key factors for success :
– Director commitment and motivation
– Real business project with attractive financial prospects.
An owner buyout is the least risky type of leverage buyout as there is no real change in owner or directors. It is the reason why this process creates more and more interest from owners as well as capital investors.
– This technique allows for managerial continuity which reassures banks to give more financial help.
– The interest for the manager is that they secure part of their professional asset by turning it into a personal asset.
– If a family sale or sale to employees is not planned, an owner buyout gives the manager the possibility to choose a manager and train them into the company in order to sell it.
Example : entering a family member into the capital
We use as an example a company, which is valued at 2 million Euros and entirely possessed by the director. The director wants to carry out an owner buyout in order to liquidise 50% of his titles and, at the same time, enter his daughter into the capital.
He creates a holding, which holds 100% of an SME’s titles. Then he gives 45% of his shares to the holding, which is 900 000 Euros. His daughter gives 100 000 Euros to the holding, which totals all in all 1 million Euros. With one million Euros in equity, taking into account the ratios accepted by credit institutions, the holding can now borrow 1 million Euros from banks over seven years.
The holding uses the money from this loan in order to pay the director cash for the remaining 50% of the titles. In the end, the director still keeps 90% of their SME through the holding and his daughter now has 10%.
– This particular arrangement is often used to get money back or to introduce new shareholders such as family members, employees or even capital investors into the company. If the distribution of capital has not changed, it is possible that the tax administration could consider it as tax evasion.
– If you overestimate your company, the financial arrangement could be difficult to manage and you risk weakening your company.
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