Q: What exactly is a “majority buyout”?
A majority buyout is a transaction where a business owner sells a majority (more than 50% and up to 100%) of his or her company.
Q: Who is the ideal business owner for a North River Group majority buyout?
- An owner / operator seeking a liquidity event but wanting to stay on “post-closing” in his or her management (CEO) capacity.
- A passive business owner looking to sell his or her ownership position.
Q: Who is not an ideal business owner for a North River Group majority buyout?
- Institutional owners (other private equity firms)
- Business owners who do not care about the legacy of their company
Q: What makes North River Group a unique buyer?
- We look to buy companies and potentially hold them forever.
- We are not operationally focused / give operational autonomy to CEO.
Q: If you are not operationally focused, what decisions are you involved in?
- Capital allocation decisions (capital expenditures and similar large cash outlays)
- CEO Compensation
- Overall company strategic decisions as needed or desired
Q: How do you compensate CEOs?
We believe in as much alignment of interests with the CEO. As such, CEO compensation structure is simple: base salary + bonus:
- Bonus = % of annual pre-tax earnings
Q: What are my other options for liquidity besides selling to a group like North River?
- Strategic acquirers – Operating companies in your industry looking to “roll up” many companies. The rationale for such transactions is many times due to “cost synergies.” Cost synergies are another way of saying “layoffs” of administrative personnel.
- Traditional private equity – Typically hold investments for 3 to 5 years and then sell to other private equity firm or strategic acquirer. Such a short ownership period can result in short-sided business decisions.
Q: Why is North River Group okay investing over a long time horizon?
Simply stated, finding good management teams running good companies is an extremely hard task. When we find such a combination, we prefer to invest over the long term.
Q: What is the typical timeline for making an investment?
The deal terms are set forth in a Letter of Intent. Once this document is agreed upon by the business owner and North River Group, closing typically takes place at the latest of 3 months from signing. During this time, business due diligence takes place. This entails an outside accounting firm performing a quality of earnings analysis on the company financials, customer/vendor visits as appropriate, background checks, etc. Finally, legal documents are drafted prior to closing.