Questions

When going through an acquisition as a minority shareholder in a complex transaction, should I hire an expert "agent" to negotiate on my behalf?

My business is being sold in combination with two other businesses. Partners own 100% of the other companies and 67% of mine. The likelihood that my valuation is not reflected appropriately in this consolidated arrangement is very high. Depending upon which metrics are used to value the respective companies, I could see a pro rata payout ranging from 3% to 13% of the whole. Discrepancy is due primarily to my company carrying 81% EBITDA margin while the other two businesses hover around 15-20% -- however, those companies generate much more revenue in comparison (for now). So the stakes are high and there are millions on the line here. I have no experience in this world and financial matters are not my forte. I'd be looking at paying 3%-8% of my collected earn out to the experienced representative. Is this type of arrangement normal? Assuming much complexity, my IP and future maneuverability are at stake, AND I'd be negotiating against family members (both partners), would this make sense? My gut says yes but I'd really appreciate honest feedback.

4answers

The complexity of your situation is similar to multiple acquisitions I have encountered on both sides of the table in private and public transactions. In most situations involving private equity, it is doubtful if the additional cost of a private agent would generate a material gain given your minority position. However, since your situation has the additional complexities of differentiation in EBITDA contribution and negotiation with family members, I would agree with your recommendation to use an external agent. If the cost is a concern, you may want to consider using an advisor/coach/consultant to work on a fixed fee basis instead. I took this approach in selling one of the private companies I ran and was able to complete the transaction at a much lower cost than using an investment banker or agent. I'm happy to share my experience and lessons learned if you would like to follow up with a discussion.


Answered 3 years ago

For about 30 years I have been an agent, investor, advisor and director in many companies involved in mergers sales and acquisitions. I have seen many failures as well. The biggest mistake is that owners want to do it on their own without adequate advice. Adequate advice includes at least three different professionals-a CPA, a corporate lawyer and an agent. Dont use your book keeper, or the lawyer who did your will, or a stockbroker--they have the wrong skill sets. If you would like to discuss this Im available. Good luck.


Answered 3 years ago

In my experience working in similar cases in several countries, I can say that any complex solution starts by simplifying it and concentrate on the essential. So focus on your objectives and you will do fine.

The model of collaboration you propose seem reasonable to me. I will be happy to explore it with you.


Answered 3 years ago

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