Navigating Shareholder Buyout Transactions: Key Insights

Over recent months I worked on shareholder buyout transactions. I find these transactions always interesting as it has so many different facets to it, ranging from shareholder (often family) negotiations to business valuations and securing the finance to make the transaction happen.

The most difficult part is reaching agreement between the vendor(s) and the buyer(s) and for the transaction to be fair. Once the agreement is drawn up, will either party be prepared to assume the other’s position? This is always a good test. Some say that a good deal is where both parties walk away, and both are “slightly happy”.

Once agreement is reached, the next hurdle is securing finance and for most deals, lenders require the finance to be secured and mostly asset backed. Further, the finance portion could range from 50% to 60% and perhaps a little higher. This required a large equity portion to be contributed.

Where businesses have been trading for many years with strong and consistent performance, the valuation mostly runs into several millions. These transactions tend to fall over as buyers are not able to contribute the necessary equity, vendor finance might not be an option or landed assets are not available to back the financing.

There is no reason for these transactions not to be successful. With strong and consistent performance by the business being the subject of the acquisition, there are lenders on my panel willing to finance these transactions.

Should an acquisition or a buyout be on your list and you wish to discuss further, it would be time to contact me.