Buyout

The Insider’s Guide to Buying Your Own Company

Author: Rick Rickertsen , Robert E. Gunther
Pub Date: 2007
Your Price: $24.95
ISBN: 0814406262
Format: Hardcover

• Overview
• About Rick Rickertsen
• The Insider’s Guide to Buying Your Own Company - Chapter 1
• Advance Praise For BUYOUT: The Insider’s Guide To Buying to Your Own Company
• Praise for this book
• A Conversation with Rick Rickertsen, author of BUYOUT
• Any Talented Manager Can Lead A BUYOUT Says Rick Rickertsen Author Of buyout
• Tactical Tips for Approaching Investors from Rick Rickertsen’s BUYOUT
• Table of Contents
• Request an Evaluation Copy, INSTRUCTOR ONLY!

Any Talented Manager Can Lead a Buyout Says Rick Rickertsen Author of BUYOUT: The Insider’s Guide to Buying Your Own Company

Venture capital veteran Rick Rickertsen demystifies the buyout process and gives managers a hands-on reference filled with stories straight from the business battlefield.

I wrote BUYOUT to debunk the myth that only ‘buyout artists’ can run deals and to make entrepreneurs out of managers.

—Rick Rickertsen

Rick brings the complexity of high finance to its knees, and leaves it begging for mercy.

Unprecedented capital is available for managers with the vision and talent to gain equity in a company through a corporate buyout, says Rick Rickertsen, COO of Thayer Capital Partners and venture capital veteran. His new book BUYOUT: The Insider’s Guide to Buying Your Own Company (AMACOM, April 1, 2001, $32.95), written with Robert E. Gunther and introduced by bestselling author Michael Lewis, gives managers the tools they need to know and command the buyout process.

Any manager who enters into the buyout process without understanding what is involved runs the risk of losing control of his own vision and, even worse, of failing to get the best deal possible for himself and his team. “As a management buyout investor for more than fifteen years, I have consistently been amazed by how little senior executives understand their huge opportunities to create equity value for themselves by purchasing their own company or operating unit,” Rickertsen says. Great managers can be great deal-makers and, with BUYOUT as a reference, they can identify the buyout opportunities right under their noses and make those opportunities work for themselves and their teams.

Taking managers through every step of the buyout process, Rickertsen uses in BUYOUT real-life examples of successful deals he has guided in the past. He tells the stories of Dan Gillis of SAGA Software, Roger Ballou of Global Vacation Group and Stu Johnson of Iconixx, each of who went from being managers to becoming equity-holding owners of thriving independent companies. Rickertsen draws on their experiences and those of a fourth company, Techway, Inc. (based on an actual deal), as a source of both inspiration and reference, providing documentation from each deal to support the fundamental steps of the buyout process.

BUYOUT begins by advising managers on how to find or create their own buyout opportunities. Dan Gillis saw his opportunity when the German parent company, whose American division he headed, hit hard times. Envisioning a sell-off or merger in his division’s future, Gillis stepped in with his own buyout offer. Roger Ballou and Stu Johnson both put together their dream companies through multiple buyouts. Because the situation is different in every manager’s case, Rickertsen offers a thorough list of search criteria for finding the appropriate target company or companies. He details the essential “tangible and intangible skills and qualities that managers need to lead a successful buyout,” warning that without credibility, commitment, steady nerves and the right skills portfolio, a buyout will rarely be a success.

Once the buyout opportunity is identified, step one of the process is the development of a strategy, centering on the business plan. Rickertsen has seen thousands of plans, and can’t stress enough their importance. “I have several rules for drafting winning business plans,” he says. “If you follow them, I can’t guarantee that you’ll be on CNN but I can be fairly sure that your plan won’t end up in the garbage fifty seconds after it’s been received.” By keeping the plan tight, starting it with an executive summary that takes up no more than two bulleted pages (Roger Ballou’s is given as an example) and doing exhaustive research on markets and competitors, managers can increase dramatically their chances of catching the eye of buyout partners, banks and IPO investors alike.

The next step is the structuring of the deal with the seller. After the initial approach and the establishment of willingness on the seller’s part, the management team is ready to determine the company’s value. This is one of the trickiest tasks on any manager’s agenda. “Valuing a company is part science and part art. The science is determining what similar companies are worth, where the industry is headed, and what kind of multiples a company of this size and shape can command. The art is then adjusting that mathematical number to reflect the characteristics of the actual firm.” Examples of each of the legal documents required at this stage—the term sheet, letter of intent and purchase agreement—are provided as reference.

With all the requirements met, the next step is to approach the buyout partners and banks. At this stage managers begin to craft their personal stake in the deal. “Make no mistake about it: This is the Holy Grail of the buyout. The deal you negotiate here sets the foundation for all that is to come in the future,” Rickertsen warns. “Too often managers end up at the mercy of the buyout shop because they don’t understand the process and the financier’s motivations.” Stu Johnson, who put together several deals in quick succession to build his dream company, is an expert on approaching equity partners, and provides Rickertsen with several hard-won insights into this phase of the process.

Rickertsen recommends that managers ask themselves continuously what they hope to gain for themselves and their team. “The assessment of a buyout’s financial potential begins in a crude form at the start of the dream—with a few penciled calculations on a cocktail napkin. As each piece of the puzzle moves from hypothetical numbers to actual numbers, the assessment is updated,” Rickertsen says. To help managers move from ballpark assessment to accurate projection, he builds a detailed financial model for Techway, Inc.

Rickertsen stresses the importance of due diligence. A willing seller, flawless strategy, an excellent management team and available capital will amount to nothing if a manager fails to unearth and address skeletons in the corporate closet. “One of the advantages of buying your own unit is that you generally know where the bodies are buried,” says Rickertsen. Early detection of any past inconsistencies or indiscretions means that managers have the chance to be the bearers of bad news, alerting buyout partners to the problem before those partners inevitably find it through their own diligence process.

Due diligence is especially important when an outside company is being purchased. Failure to do more than simply scratch the surface of a company and its managers can have disastrous consequences, as was the case with a deal Rickertsen worked on early in his career. The story of this buyout is told in the book as a cautionary tale for buyout managers. Rickertsen advises managers never to be “blinded by love for the deal,” as he was in the case of his worst experience.

For managers who make it successfully through the “ground war” of the buyout process, a signature on the final paperwork signifies the close of the deal and the beginning of the real work. “This is the point where managers have the opportunity to put their strategies into action,” says Rickertsen. “There is no corporate parent to blame if things go wrong, but also no one to hold the team back from achieving what they know they can.” BUYOUT advises managers who reach this stage to consider ways to keep old employees and attract new ones through innovative compensation structures, to further growth with immediate “add-on” acquisitions, to implement solid budgeting and planning processes, and to recognize the importance of internal and external communications.

While managers may be happy running their own thriving, independent companies for many years to come, an exit plan must be crafted for investors. “Most investors will want to see a return within three to five years; some will want it sooner,” Rickertsen says. “If you don’t have at least one potential exit, no one will follow you into a cul-de-sac.” Rickertsen details the advantages and disadvantages of four possible exit strategies and gives particular attention to IPOs. He has seen his fair share of managers and investors alike become deluded by what he calls “IPO fever,” and he cuts through the hype to the far less glamorous reality of going public.

Rickertsen, by offering his insights and those of some of the managers with whom he has worked, hopes to inspire more great managers to realize their professional potential through management buyouts, for, as he points out, “a buyout investor is only as good as the managers who run the companies.” To make the book even more useful, he offers extensive appendices and checklists, as well as exhaustive international directories of private equity investment firms and debt financing sources.

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