If you're looking to acquire a business, then you might not have to look further than the company where you work.
Just ask Kathy Reich, one of the three Executive Partners at Alpine Environmental Ltd, who lead a successful management buyout at the Calgary-based company. "I was confident that this was the best way for the previous owners to exit the company and an ideal way for us to take advantage of an excellent business opportunity," she says.
Last September, Reich and Executive Partners Troy Bulbuck and Ranju Shergill purchased the fast-growing firm, which provides a diversity of environmental services to industries in Western Canada, including compliance and liability, emergency spill response, environmental planning, geographic information systems, reclamation, as well as contaminated site assessment and risk management.
"It was a natural step for us to pursue ownership. We saw a real opportunity to grow the company. Our goal now is to build a sustainable business and pursue an aggressive growth curve," says Reich.
Experience counts
The MBO enabled the trio to bring extensive experience to the table. And for former owners Ed Lambert and Alan Scheibner, continuity was important in the deal. "They were looking for buyers who would respect the current corporate culture, which is really about empowering human talent," says Reich. Although external buyers such as public traded companies were considered, the previous owners had more faith in their employees as potential successors. "I think they had confidence that we would live up to those expectations," she emphasizes. "They recognized that we were a young and dynamic team that would bring a lot of new energy to the company."
A smooth transfer
One of the key advantages of an MBO is that responsibilities can be transferred smoothly and rapidly since the buyers already have experience under their belts. "The predecessors were also looking for a clean cut deal and didn't want to play a future role in the company," she says.
Financing the deal
BDC, along with another financial institution that provided a term loan, assisted in the financing of the transition of ownership with subordinate financing. "Subordinate financing mimics equity financing because the investment is based on the cash flow of the company rather than on the tangible assets. However, unlike venture capital, ownership is not diluted," explains Brenda Wall, Manager, BDC Subordinate Financing, who oversaw the deal. "What's important to remember is that the word 'subordinate' refers to the fact that the security of BDC ranks behind other lenders such as charter banks. Ultimately, the risk is shared," she adds.
"Alpine Environmental Ltd. was an ideal candidate for this type of financing. The company had a history of strong cash flow but lacked sufficient tangible assets to secure traditional financing." Wall also points to the strong skill sets and knowledge of the buyers as "the strength of the deal. The financial commitment by the purchasers also made it attractive to us," she says.
Meeting the criteria
The management team did shop around for financing but what clinched the deal with BDC was "our ability to also provide a solution for a funding gap," says Wall. The new management team wanted to change ownership structure. Their goal was to provide employees with the possibility to buy shares in the company. And until that happened, equity was required, she explains. BDC was able to offer a temporary equity investment that would be paid out in 6 months or remain for five years depending on employee interest in purchasing shares. "It was a properly balanced financing deal for an MBO. The right level of debt and equity ensured a healthy amount of capital going forward for the growth of the company, and at the same time, helped the business make the transition to an employee-owned company." The repayment schedule was also based on "balloon financing", which allows clients to defer a large portion of payment until the end of the term. This frees up working capital until that payment is made.
Kathy Reich also agrees that the package truly met their needs and that BDC provided an advisor who "knew how to structure a deal. It was great to work in partnership with an organization that obviously had experience with MBOs. That was a must for us," she concludes.
