Types of Divestitures
SPECIALISTS IN PRIVATE EQUITY with the expertise and understanding where your company is in the business cycle with respect to valuation metrics such as cash flow normalizations, EBITDA multiples, leverage ratios, working capital expectations and redundant assets which are keys to a successful transaction.
Strategic buyers are either vertically or horizontally integrated firms that would experience synergistic value through the acquisition. A vertically integrated company is looking at purchasing one of their suppliers that are integral to their product or service. Horizontally integrated companies are businesses that are producing similar products or services. Strategic purchasers can pay up for transactions as the integration of two businesses may provide a value that may far outweigh the sum of the two companies individually valued. A sale to a horizontal strategic purchaser may result in a higher percentage of cash proceeds as they have the industry expertise and may not need management post transaction. We are seeing more strategic purchasers being backed by private equity funds.
Financial buyers are comprised of bank sponsored and private equity funds (independent or institutional). Financial sales often result in a growth or acquisition plan with follow-on transactions that can enhance shareholder value. Financial buyers are not involved in the active management of business but rather rely on the existing management team. The typical financial buyer will leverage the business with an appropriate amount of debt reducing the equity capital in a transaction. Additional capital is often available to grow for working capital additions and capital expenditures for growth initiatives. Financial buyers usually have a finite time period in which they invest (4-10 years) and typically plan for a liquidity event for some or all shareholders.
A management buyout is a succession plan that involves the existing management purchasing the shares from the owner. Management buyout transactions often have the involvement of some outside capital provider partnering to complete the transaction or the transaction may happen slowly working with the owners over a longer period of time without any outside financial assistance. Management teams have the knowledge but lack the financial wherewithal to complete these transactions on their own. Financial structuring is often required to get the transaction completed, and in many cases the management team may result in having majority ownership. Links has acted for both management teams and the sellers in these types of transactions.
Many organizations often acquire businesses and after a period of time may change strategic direction. When this happens, businesses that were once a business fit with the organization are no longer a fit. Spinoffs may provide an opportunity for the right strategic purchaser. In many instances, the businesses may be sold back to the previous owners. Links has acted for previous owners is structuring, financing and acquiring spinoff businesses.