Anthony Lanford has broad experience providing advisory services to company managers and executives having determined the initial criteria of the success of an acquisition to the final completion of the transaction.
We add considerable value to our customers in both the analysis phase as well as in the negotiation of the final terms.
Due to our role as external advisers, we contribute to an effective negotiating atmosphere and thereby a strong basis enabling collaboration and integration of the companies.
Our customers regarding acquisitions are typically:
Companies, which due to growth strategies or structural conditions within the industry see a strategic opportunity in acquisitions for the purpose of achieving synergy advantages in connection with integration.
European companies, which due to an increased competition or pressure on price, need to seek strategic OEM Partners or outsource their production to Asia, to sustain or increase their position in the marketplace.
Foreign companies that wish to get a foothold in a new geographical market.
Private equity groups that want to carry through buy-out or industrial consolidation.
Managerial and financially strong individuals with a strong commercial background who are interested in acquiring companies that are ready for succession – Management Buy-In (MBI) or Management Buy-Out (MBO).
Concerning acquisitions abroad we have the ability, by means of our own partners and the IMAP network, to compose teams consisting of in the respective countries.
An acquisition process is carried out throughout several phases over a long period of time. Thus, it is recommended that preparations collaborating with Anthony Lanford should begin promptly to optimize commercial, legal, and financial conditions.
Anthony Lanford manages the entire acquisition process from the initial analysis of the buyer’s situation, determination of success criteria, identification of and contact to selected companies, to the final negotiations and structuring of closing.
This process is carried out in close collaboration with the selected company’s advisers, including accountants and attorneys.
Management Buy-Out and Management Buy-In
Anthony Lanford has in the recent years closed a substantial number of deals in Europe, where either the company’s existing managers have taken over the company completely or partly (Management Buy Out) or a new management has taken over the company (Management Buy In).
A great number of companies face either a succession or are considering a disposal in the coming years and in this context MBO and MBI will be increasingly relevant and a possible alternative to an industrial sale.
A management buyout (MBO) is a type of business acquisition in which the managers of a company purchase the business from the current owners or parent company. MBO’s can be structured in several ways. However, many transactions use the leveraged buyout model.
Leveraged buyouts are often used since few management teams have the financial resources to buy the target company outright. They need external financing to facilitate the purchase and are often interested in leveraging some of the assets of the target company.
Funding the Purchase
The type of funding that is available to purchase the company is based on the size, brand recognition, assets, and cash flow of the company.
Larger transactions, such as when a corporation is selling off a division, may be able to use several products such as bonds, senior and mezzanine loans, private equity injections, and so on.
Smaller companies or turnaround situations usually have fewer options than their larger or better-established counterparts.
However, it is possible to finance the buyout of a small company if the management team is willing to use alternative financing.
Equity from new management team
Perhaps the most important type of financing comes from the managers who are making the purchase.
The management team that is organizing the buyout must contribute some of their own cash and assets to purchase the target company. It is not unusual for managers to raise the funds by selling off certain assets (e.g., stocks) or getting a second mortgage on their home.
The management team’s financial contribution is very important. Funding companies consider it a gauge of how committed the team is to the transaction.
In some cases, the management team may be able to secure financing through a private equity firm.
However, private equity firms prefer scale and tend to invest in larger transactions.
Their investment may consist of buying shares and/or providing additional funding such as loans and asset-based financing. Keep in mind that the private equity firm may have objectives that differ from those of the management team.
Private equity firms usually want a liquidity event after 3 to 6 years. They look to exit the transaction in that time frame, allowing them to realize their gains.
Consequently, their funding programs often include stipulation of how the company is to be run and what objectives must be met.
Seller financing
One of the most common options to finance a management buyout is for the seller to provide financing (also known as deferred consideration). Usually, the seller creates a note that is amortized over a period. This option is an advantage for the management buyout team because sellers are usually more willing than banks to provide the funding.
Additionally, as a condition of financing the transaction, some lenders may insist that a portion of the sale be financed by the seller. This condition provides a measure of confidence to the lenders because it shows that the seller believe that the business will remain a viable concern once the sale is completed.
Although often hard to get, a bank loan is an effective way to finance a management buyout.
The obvious benefit is that bank loans are cheaper than most other options.
Assumption of debt
Part of the acquisition costs can be paid by assuming some or all of the liabilities of the target company.
Private Equity
In some cases, the management team may be able to secure financing through a private equity firm.
However, private equity firms prefer scale and tend to invest in larger transactions.
Their investment may consist of buying shares and/or providing additional funding such as loans and asset-based financing. Keep in mind that the private equity firm may have objectives that differ from those of the management team.
Private equity firms usually want a liquidity event after 3 to 6 years. They look to exit the transaction in that time frame, allowing them to realize their gains.
Consequently, their funding programs often include stipulation of how the company is to be run and what objectives have to be met.
Bank lines of credit
The most popular product to finance operations is a regular commercial line of credit.
These lines offer great flexibility at a very competitive cost. Unfortunately, getting a line of credit can be difficult, especially if you had to encumber a lot of assets to finance the management buyout.
Also, lines of credit have covenants that must be met to remain in compliance with the facility.
This compliance can be difficult in the initial stages of operations.
Accounts receivable financing
Accounts receivable financing can help a company that has cash flow problems due to slow-paying accounts receivable.
This solution can help finance your MBO immediately after the purchase when cash is tight. It helps provide the working capital to make payroll and pay suppliers.
Receivables financing can also help later on, once the company starts growing.
Inventory financing
Another way to get funds for your company is to finance your current inventory.
While inventory financing can free up funds, it comes at a relatively high cost.
This solution is more expensive than other alternatives and best used as a last resort – or in combination with other solutions.
Purchase order financing
One of the challenges of getting a large order is that the company may not have enough working capital to cover supplier expenses.
Purchase order financing can help you pay suppliers and deliver large orders.
However, purchase order financing can only help companies that re-sell third-party goods.
They must use a third-party manufacturing facility and must have a minimum gross profit margin of 20%.