A management buy-out (“MBO”) is an effective succession/exit strategy where an Owner wants to reward its core management with an equity stake in the business for the future, while being able to crystalize their own investment.
“Value is in the eye of the beholder,” some may say. When I sold my valuation business to Welch Capital Partners in 2018, I learned that the concept of “value” is much broader than my theoretical learnings had led me to think.
Managing cash flow will be the key to ensure you can weather the storm. It is clear, that the impact of Covid-19 will be felt by many businesses. As we write this article, we are only at the beginning, and the total impact remains to be seen.
One of the most contentious issues that continues to plague deals is around working capital – specifically the purchase price adjustments that result from setting working capital targets. If consensus cannot be easily reached, working capital discussions can prolong negotiations, leading to deal fatigue, increased costs and a risk of losing the deal.To address some of the pain points associated with traditional completion accounts, the use of a Locked Box Mechanism is becoming increasingly prominent, as it can help lead to greater deal transparency, better decisions, and smoother negotiations.
The CFO plays a key leadership role in an organization, acting as the trusted business advisor to the CEO and the Board of Directors, by providing them an objective view of the financial performance of the business, while holistically assessing the company’s risks and opportunities.Today the CFO role is not viewed as solely keeping score or maintaining operational efficiency (cost containment, controls, quality of data, defined processes, etc.) it’s about “operational agility” and the CFO’s ability to collaborate, focus on growth, embrace a culture of adaptive learning and to effectively deliver analytics that are both meaningful and change agents for the company.
You may not know it, but some people go crazy for sneakers! So much so, there is even a “stock exchange” for buying and selling and tracking the value of sneakers called StockX. StockX’s last valuation round placed the company’s value at $1.1-Billion.Just for a day, we thought we would get into the craze! It all started when driving into work on a Saturday listening to CBC radio. The host was interviewing a local skate shop called Top of the World, that was lucky enough to have received 30 pairs of Nike’s SB Dunk Travis Scott limited edition sneakers. Don’t know who Travis Scott is? Neither did we. His claim to fame is that he dated Kylie Jenner.
Immersed in finance theory, my cohorts and I analyzed numerous public companies, performed financial analysis on their reported financials, and prepared valuation models using discounted cash flow (DCF) methodologies to find the intrinsic valuation of these companies. We then, with great confidence (and in hindsight, with great naivety), told the world whether the price of the stock was overvalued or undervalued.We were kings of Fundamental Analysis (FA). We viewed trendy valuation methodologies at the time (such as ‘value per engineer’) as pure gobbledegook. According to Investopedia, fundamental analysis is a method of measuring a security's intrinsic value by examining related economic and financial factors.
The success of the deal now hinges on ensuring working capital targets, and any potential adjustments, satisfy the interests of both the buyer and seller. It doesn’t matter how big the deal is, at some point, and perhaps initially with no apprehension, you’ll encounter a discussion about working capital during the M&A process.As advisors we have routinely witnessed the problems that arise from failing to appropriately negotiate working capital targets early in the process. These problems can limit the ability of both parties to come to consensus in other areas of negotiation and can ultimately have profound impacts on the final sale price of the company.