Considering buying someone out of their business?

Buying out another company can be a great way to expand your business interests and is very effective in helping you to move into new markets. It does pose risks, however, especially if you need to borrow extensively in order to do it, so it’s something that you need to approach with care. Before making the decision to move forward, you will need to be sure that you’ve made the right choice of stock, secured the right financing deal and set up the right business plan to enable you to meet your new financial obligations.

The pros and cons of buyouts

A successful buyout is the fastest way to grow your company. It can help you reach new markets, acquire new talent and join up all at once with whole networks of useful new contacts. In some circumstances it can also help the company you’re buying, if it was financially vulnerable, and it can save its employees from the dole. In other cases, however, employees may resent the buyout and you may find that you don’t get the cooperation you need to connect your existing company and the new one in the timeframe you anticipated. When things like this go wrong, you may face a financial shortfall that could be seriously problematic if you don’t have an understanding lender.

Close-up of a mature businessman with colleagues in meeting at conference room
The buyout industry

The best way to avoid getting into trouble like this is to develop a solid business plan and talk through it with your prospective lender, being open about possible weaknesses and discussing contingencies. You don’t need to worry that this will make you look like a bad choice – there are many lenders out there who specialise in financing buyouts and what they’re interested in seeing is that you have the capacity to think realistically and can come up with a sound business strategy. Take account of their expertise and don’t be afraid to ask them for advice as you shop around for the right deal.

Example: Charterhouse Capital

Charterhouse Capital Partners is a business that specialises in private equity and leveraged buyouts. Its focus is chemical and engineering companies, but it’s also involved in the leisure sector and business support services. Though it only became independent in 2001, its management team have been involved in LBO finance since 1982.


The right choice for you

Although the average LBO stats with around 90% debt to 10% equity, there’s no one size fits all approach in this sector – what matters is that you find the right approach to suit your business, the business you’re buying, and the skills and talents each can bring to the table. If you plan to use the other company’s assets as collateral, make sure you have an accurate assessment of their worth. The fact you may need to move quickly to secure a deal is not an excuse for being hasty. Remember that you’ll be living with the consequences of this investment for a long time, and take the precautions necessary to get it right. If things work out, it will be well worth the effort.