Buyout Book : Table of Contents

Introduction: Seize Your Destiny
With readily available capital, skilled managers have never had more leverage in leading buyouts. There are tremendous opportunities for managers who know how to set up the deal. This chapter examines the power of equity and provides an overview of the book.

Chapter 1: The American Management Dream
Software AG Americas President Dan Gillis and CFO Harry McCreery dreamed of taking charge of the American division of the German software company. Through a combination of creativity, determination, planning and luck, they were able to pull off one of the most successful management buyouts ever. Less than a year later, Gillis was banging the gavel on the floor of the New York Stock Exchange after turning management’s $1 million investment into a value of $40 million. This chapter tells the story of the buyout to illustrate key steps, strategies and characteristics needed to make a buyout successful. It also provides a motivating story for managers who have only dreamed of doing what Gillis and McCreery did.

Chapter 2: No Guts, No Glory
Roger Ballou, former American Express and Alamo Rent-A-Car executive, had thought about starting his own business or buying out his division at Amex. But it was only many years later that he acted upon that inspiration to start Global Vacation Group. Managers have more leverage than they realize. Capital is readily available; management talent is the limited resource. This chapter explores the sources of management leverage and why many managers fail to recognize them. It also describes the personal qualities needed to triumph in the buyout world.

Chapter 3: Avoiding Deal Hell
Ceramic City seemed like a deal made in heaven but turned out to be a deal from hell when the CEO deliberately misled auditors and investors about the company’s financial state. This tale from the author’s own experience and crash-and-burn stories from other seasoned dealmakers illustrate the challenges and potential pitfalls of making deals. These tragedies often teach more than triumphs about what it takes to put together a successful deal. This chapter points out some of the common pitfalls and lessons for managers.

Chapter 4: Find or Create Your Opportunity
Ownership can be achieved from the inside or outside. Some managers, like Dan Gillis of SAGA Software, buy their own firm from the inside. Others, like Roger Ballou who created Global Vacation Group, buy another firm or put together a group of smaller firms. This chapter explores strategies for success in leading the revolution from within, including advantages that internal buyers may have over external rivals. The chapter also looks at strategies for buying from the outside, including matching the business to manager and identifying suitable acquisition targets.

Chapter 5: Strategy for the Business
The business plan will make or break the deal and will affect the future of the new company after the buyout. Starting with the example of Techway, a unit of a large defense contractor that was about to be spun off, this chapter explores the key elements of a successful business strategy. We also look at the strategy process from the viewpoint of potential investors. What is the key information they are looking for? How can managers present it so investors will read it in a fast-paced environment?

Chapter 6: The Deal with the Seller
Once the strategy is formulated, the next step is to approach the seller. The first challenge, of course, is to find a willing seller. The next major challenge is to determine an appropriate value for the company. This chapter provides straightforward ways for valuation, combining both science and art. It also walks through the seller term sheet and key elements of the letter of intent including consideration, confidentiality, and representations and warrants.

Chapter 7: Show Me the Money
With a solid strategy and a willing seller, the only thing missing from the deal is the money. This chapter examines how to find good money from private equity (buyout) firms and banks. It looks at key elements of the management deal with investors that will determine what managers get out of the buyout. It includes a detailed sample term sheet and an analysis of key provisions on issues such as ownership, vesting and governance.

Chapter 8: What’s in it for You?
Assessing the potential financial returns to managers and investors is the cornerstone of a successful deal. What is the potential upside if things go well? What is the potential downside if things go wrong? Using a sample spreadsheet, this chapter examines how managers in the Techway buyout assessed the potential returns of the deal based on projections for the business and their terms with investors and the seller. This chapter also explores how the management share is divided among top executives and equity is transferred to a broader group of managers in the company.

Chapter 9: Preparing for the Ground War
A successful buyout needs to be run like a military exercise. There are armies of lawyers, accountants and others players involved. Keeping everyone moving in the same direction is a logistical challenge. Managers have to have the fortitude to handle periods of boredom followed by near-death experiences, as every deal goes through its inevitable periods of "deal death." This chapter explores some of the many details that can make or break a deal, including due diligence, reference checks, legal documents and strategies for closing.

Chapter 10: Riding the Tiger
Now that managers have saddled up the tiger, the ride is just beginning. What happens after the deal determines the value that is actually realized from it. The management team has to make the transition to autonomy and leverage its newfound independence by creating a more entrepreneurial culture with higher degrees of ownership. This chapter examines strategies for leveraging the independence of the firm and bringing in new skills to the organization. It also discusses four strategies for exits, including exit strategies that employ IPOs.

Appendices: The Buyout Toolkit
Appendix A: Management Term Sheet and Summary of Understanding
Appendix B: Letter of Intent with Seller
Appendix C: Bank Commitment Letter
Appendix D: Confidentiality Agreement
Appendix E: Executive Reference Check Form
Appendix F: Working Group List
Appendix G: Time and Responsibility Schedule
Appendix H: Due Diligence Checklist
Appendix I: Directory of Private Equity Firms
Appendix J: Directory of Debt Financing Sources
Appendix K: The Financial Model—A More Detailed Look