Interested in buying the company that you’ve been helping to build but are unsure of the implications behind a management buyout? Or are you a company owner looking to sell and wondering what the concerns of a prospective management team could be? Join our experts & learn everything you need to know to pursue a successful MBO.
To view this Welch LLP webinar (and others), click here: http://www.welchllp.com/resource-centre/videos/webinars/
2. Questions
Ground Rules
• Attendees are in listen-only mode
• This webinar is being recorded for future on-demand playback
• Your participation represents acknowledgement that we are recording
• Tweet questions & comments to: #WMBOs
Windows Mac Tablet
3. Presenters
Bruce Fischer, MBA, CMC
Chairman - WelchGroup Consulting
bfischer@w-group.com
www.w-group.com
ca.linkedin.com/in/bfischer
Twitter: @welchgroup
Mike Blattman, MBA
Manager, Subordinate Financing - BDC
Michael.Blattman@bdc.ca
www.bdc.ca
ca.linkedin.com/pub/mike-blattman/15/153/141
Twitter: @BDC_News
Jim McConnery, CPA, CA, TEP
Partner - Welch LLP
jmcconnery@welchllp.com
www.welchllp.com
www.linkedin.com/pub/jim-mcconnery/24/761/4886
Twitter: @welchllp
4. • Due diligence on business being acquired
• Process for a successful MBO
• Tax planning
• Types of financing
What we will cover today
5. • Assume you know nothing about the business
• Do a full DD even if you “think” you know
everything about it
• Treat the business like a NEW investment,
would you buy this business as a 3rd party?
– Be even more critical than an outsider would be
• Ensure the business strategy / business plan
can be executed without the previous owners
• Recognize the previous owner(s) knowledge
and advice/guidance value in early stages of
transition – use it
Due Diligence
6. • Undertake a full SWOT on the business taking
into account the NEW management team
• Management thinks that as they were involved
in the business, they know everything that will
affect them - NOT
• Management feels as if they are already
“running” the business without being at the
helm – think again
• Is the current business direction the same as
what the new team would be taking? If not –
what are the implications?
Implications / Pitfalls
7. • Understand deal parameters & implications they may have
on the operations (e.g. cash flow)
• Who & where is the “control” going to reside with
• Decision making? By whom, votes?
• Is there a BoD – what is role of previous owner
• How is this MBO being financed?
Internally (earn out), VTB, externally and what are the
implications
• New S/H agreement to reflect new ownership
Process for a Successful MBO
8. • Seller should address tax planning proactively
– Ideal to evaluate sale implications 2 years in advance of sale
• Seller will generally have a bias to do a share deal
– Access to $800,000 lifetime capital gains exemption (CGE)
– May have multiple access to CGE based on family trust
planning
– Buyer may be willing to get paid over time to defer gain
recognition
• Consider merits of an asset deal
• Plan for real estate if applicable
• Address post-sale employment of vendor
Tax Planning - Vendor
9. • Nature of deal will influence the tax planning
for the buyers
• Consider mechanism so that OpCo funds /
profits can assist with funding purchase price
• Address deductibility of interest expense, i.e.
where is interest expense incurred
• Tax effective structure for buyers
• Address shareholder agreement terms for
buyers
Tax Planning – Buyer Group
10. • Tax due diligence should be completed by buyers
• Address tax planning for business income on a post-acquisition basis
• Address shareholder agreement terms for buyers
• Is insurance required
– Key man
– Fund buyout terms
• Tax minimization for business owners and families
– Merits of holding companies and family trusts
• Ensure all buyers have up to date wills
• Equity or stock options for key employees
Tax Planning
15. -
100,000
200,000
300,000
400,000
500,000
600,000
Year 1 Year 2 Year 3 Year 4 Year 5
Cashsweeps and royalties
Principal Interest+ royalty
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Year 1 Year 2 Year 3 Year 4 Year 5
Fixed principal and interest
Principal Interest
Structuring Flexibility
17. 1. It’s never too early to begin
discussing opportunities with
your business and financial
professionals
2. There is no cookie cutter
solution
3. Likely multiple parties will be
involved in any transaction.
Three Things to Remember
18. Q & A
Bruce Fischer, MBA, CMC
Chairman - WelchGroup Consulting
bfischer@w-group.com
www.w-group.com
ca.linkedin.com/in/bfischer
Twitter: @welchgroup
Mike Blattman, MBA
Manager, Subordinate Financing - BDC
Michael.Blattman@bdc.ca
www.bdc.ca
ca.linkedin.com/pub/mike-blattman/15/153/141
Twitter: @BDC_News
Jim McConnery, CPA, CA, TEP
Partner - Welch LLP
jmcconnery@welchllp.com
www.welchllp.com
www.linkedin.com/pub/jim-mcconnery/24/761/4886
Twitter: @welchllp