RESOURCES

Management Buyouts

American Capital specializes in working with management to structure buyouts of corporations, subsidiaries, divisions and product lines. American Capital teams up with management to structure, bid, negotiate, finance and close buyouts on the best possible terms.

To determine whether a management buyout is feasible, and to determine the likely makeup of the ownership of the new company, American Capital will conduct a business vaIuation of the company from a buyout perspective. This takes into account the likely leveraged buyout financing structure necessary to complete the management buyout transaction. Because American Capital teams up with managers to invest on a minority basis, we believe our work to be quick, accurate and designed to answer key questions regarding the competitiveness and viability of a buyout effort.

American Capital conducts a buyout analysis to help clients determine whether they should incur the time and expense to proceed with a buyout transaction. In situations where firms are actively for sale and are soliciting bidders it is necessary to quickly assess the company's value from the management's perspective as well as from the perspective of other competing buyers, and to quickly evaluate the company's ability to support financing in order to determine the buyout options available to the employees. This is critical in enabling managers to compete on an equal footing with other bidders.

A detriment to the creation of management ownership in the past has been the sellers' perceptions that management buyout purchases take substantially longer to consummate than traditional transactions. American Capital moves rapidly to complete our work in a time frame consistent with the fast pace of corporate transactions.

Management Buyout Feasibility

Management buyout feasibility studies typically contain the following elements:

A. Market Analysis

American Capital evaluates both the short and long term market potential for the manager-owned company, including competitive pricing issues. This entails an analysis of the industry, forecasted demand for the manager-owned company’s services, and a review of its potential customers. This analysis is integrated into the revenue section of the detailed management buyout financial model described below.

B. Competition

American Capital evaluates the current and future impact of competition on the manager-owned company. The conclusions from this research are integrated into the revenue section of the detailed management buyout financial model described below. American Capital assesses price trends and the probability of suppliers extending credit to the manager-owned company. The conclusions from this research are integrated into the income statement and balance sheet section of the detailed management buyout financial model described below.

C. Facilities and Equipment

American Capital evaluates the facilities and equipment of the company in order to determine the future capital requirements of the manager-owned company. The conclusions from this research are reflected in the capital expenditure section of the management buyout financial analysis described below.

D. Management Buyout Financial Analysis

American Capital gathers and reviews data to build a management buyout financial model of the company, the management buyout transaction and the manager-owned company. The model integrates historical financial performance of the Company with future projections of the manager-owned company and includes a detailed income statement, balance sheet, cash flow statement, valuation, and a detailed set of assumptions.

The management buyout model will assist in evaluating the following issues:

1. Management Buyout Viability

American Capital analyzes the financial viability of the manager-owned company. This will include analyzing the prospects of the manager-owned company raising and/or generating enough capital to properly invest in plant and equipment, service any debt, and provide a market rate of return to any equity that may be needed to finance the management buyout transaction.

2. Fair Market Value

American Capital analyzes the fair market value of the company and the prudence of the management buyout transaction under different capitalization and manager-owned operating scenarios.

3. Productivity Improvements and Cost Reductions

American Capital evaluates whether productivity improvements and/or cost reductions will be required to successfully operate the manager-owned company. If productivity improvements and/or cost reductions are necessary, American Capital evaluates the potential areas where they can be attained, and their impact on the manager-owned company.

4. Management Buyout Financing

American Capital determines the structure of financing that will be required to support an management buyout transaction at any given price, and the ability of the manager-owned company to meet these financial obligations in the future. Included with this analysis are an evaluation of the likelihood of obtaining the required financing for the transaction and the possible sources for such financing.

5. Management Buyout Ownership Structure

American Capital analyzes the allocation of ownership between equity investors and management , and the size and terms of each of their investment.

E. Management Buyout Feasibility Presentation

Upon completion of the management buyout model, American Capital makes presentations on its initial conclusions concerning the viability of the potential of raising such financing, the required manager-owned governance structure, and the need for productivity improvements or cost reductions and the possible areas where such productivity improvements or cost reductions could be implemented in the manager-owned company.

F. Submission of a Management Buyout Indication of Interest

If the parties wish to proceed, American Capital will prepares and submit an indication of interest in purchasing all or a portion of the Company.

G. Negotiation of the Management Buyout Letter of Intent

If an Indication of Interest has been submitted and the parties wish to enter into a Letter of Intent, American Capital is engaged under a separate agreement to assist in negotiating the Letter of Intent, preparing a management buyout financing and business plan, negotiating the definitive purchase agreement, raising financing, communicating with employees, structuring the manager-owned company and consummating the management buyout transaction.

H. Preparation of a Management Buyout Financing and Business Plan

American Capital works with employees and the company to prepare a management buyout financing and business plan, and presentation materials that will be used in arranging financing for the management buyout transaction.

I. Employee Communication

American Capital works with employees and the company to communicate, educate and inform all employees about the status of the management buyout transaction, employee ownership, the structure of the management buyout transaction, the manager-owned company, the business plan and their wages and benefits following the management buyout transaction.

J. Preparation of Management

American Capital works closely with the management, as needed, to prepare them to make presentations of the business plan directly to financial institutions for the purpose of raising financing for the management buyout transaction.

K. Definitive Management Buyout Purchase Agreement

American Capital assists employees and management in negotiating the various contracts establishing the terms of the management buyout transaction.

L. Raising Management Buyout Financing

American Capital raises financing for the management buyout transaction, including presentations to sources of senior debt, subordinated debt, and equity, and assists in negotiating with financial institutions over the terms of the management buyout financing. This work may be done in coordination with financial advisors to the owner(s).

M. Teaming with a Partner or Investor

American Capital works with the company to negotiate the terms of the investment with any partner or investor necessary to consummate the management buyout transaction.

N. Creation of the Manager-Owned Company

American Capital may assist the company to establish the bylaws, articles of incorporation, and ownership and control structure of the manager-owned Company.

O. Coordination

American Capital orchestrates the efforts of the financial institutions, partners or investors, management buyout valuation firms, accountants, legal counsels to the lenders, partners and investors, and any other professional management buyout advisers who may be required for the management buyout transaction.