Acquisition Process

What to Expect When Pursuing a Management Buyout

A management buyout involves a management team acquiring a business that the team is actively managing. Sometimes the owners are active in managing the business and sometimes they are not. Sometimes the management team are small owners already and sometimes they are not. In all cases, Hadley Capital partners with the management team to acquire the business with the management team and Hadley Capital becoming owners of the business following the transaction.

There are many factors that influence the time required to complete a management buyout of a small business and the process can take as short as a few months or last more than a year.

Step 1: Introductions

Managers and business owners often contact us directly to determine whether we can help them achieve their goals through a management buyout completed in partnership with Hadley Capital. Hadley Capital only pursues management buyouts when Hadley Capital can work collaboratively with the existing owner and the team proposing the management buyout of the business. To see if Hadley Capital might be a good fit for you, please see our Investment Focus section.

In other cases, intermediaries, including business brokers, investment bankers, commercial bankers, accountants, etc. introduce managers or business owners to Hadley Capital. Frequently, the intermediary has been engaged by the business owner. Intermediaries can help owners reach a larger pool of buyers, guide owners through the sale process and assist owners in identifying qualified transaction advisors (such as attorneys).

Hadley Capital has completed management buyouts where intermediaries were involved and those where they were not. Choosing an intermediary—or not—is a personal decision. We have established relationships with intermediaries from all over the country and would be happy to make introductions to them.

Of the 1,000 or so companies we are introduced to each year, approximately 25% proceed to Step Two.

Step 2: Preliminary Review

Once we have determined that the proposed management buyout meets our investment criteria, and you have determined that Hadley Capital is a good partner, we typically exchange a Confidentiality Agreement, so the owner of the business is comfortable sharing the following information with us:

  • A discussion about the needs of the business owner and management team and the goals of each party
  • Annual financial statements for the last 3 years and year to date
  • Review of annual Owners Benefits
  • Annual revenue by major product/product line, customer, end-user, etc.
  • Current year budget
  • Organization chart
  • Other information that is particularly relevant based on the type of business (for example, annual capital expenditures in a capital-intensive business)

After reviewing this information, a follow-up telephone conversation or in-person visit, we will either confirm our interest and discuss next steps or politely decline. If we move ahead, Hadley Capital will typically issue an Indication of Interest and arrange an on-site visit if not already completed.

Of the 1,000 or so companies that we are introduced to each year, approximately 10% proceed to Step Three.

Step 3: Detailed Conversations and Formal Agreement

During this phase, the process becomes more involved and more formal. In a management buyout, we have found it is critical to maintain a collaborative relationship between the business owner, the management team proposing the buyout and Hadley Capital. Through multiple visits and phone conversations among all three parties, Hadley Capital continues to learn about the business and you learn more about us. Our conversations will help us refine our approach to company valuation and transaction structure. The Indication of Interest from Step 2 may be revised multiple times during this stage and, eventually, lead to a formal Letter of Intent.

A Letter of Intent, or “LOI”, is a formal, written document indicating the terms a buyer is offering a seller in a proposed acquisition or investment. A LOI states a serious intent, by both parties, to carry out the proposed transaction. Hadley Capital is very selective about issuing LOIs because they indicate that we will be dedicating substantial resources to acquiring your business under the terms outlined in the LOI. Less than 1% of the companies we review result in a Letter of Intent and proceed to Step 4.

Less than 1% of the companies we review result in a Letter of Intent and proceed to Step 4.

Step 4: Due Diligence to Closing

Due diligence is a rigorous 30-day review of the business and includes a detailed analysis of accounting history and practices, operating practices, customer and supplier references, management references and market reviews. The due diligence process is managed by a Hadley Capital partner with the assistance of third party advisors such as accountants, market research firms, and others.

Hadley Capital has the committed capital required to complete acquisitions. But, in nearly all cases, we use some form of debt financing to supplement our equity capital. The debt financing process includes identifying lenders interested in partnering with Hadley Capital to complete the acquisition. Hadley Capital maintains a large Rolodex of lenders that we partner with to complete acquisitions.

The final step in the acquisition process is the legal documentation and funding step. Upon completion of the legal process, the acquisition funds are wired to the seller and the acquisition is complete. When the deal is finally done, we can celebrate the beginning of our mutually beneficial and profitable future together.

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