Family Business Buyout

Hey All,

Apologies in advance for the long post, but I'm in an interesting situation. I'm currently working in a Corp Dev job (about 3 years out of school), but have had serious talks with my grandpa to join his business - think Specialty Industrials company with highly engineered products, does about $12M in Revenue and around $4M in EBITDA. In addition to having serious talks about his business and the potential role I would play going forward, he's contracted me to do consulting work for him over the last year, something that has been mutually beneficial for us both. It's allowed me to get a "peak under the hood" as well as gave him valuable insights into his Product pipeline/Business development efforts. I've always envisioned working there and proving myself enough to a point where I could negotiate performance equity comp or even just a "buy-in" to the business, as a managing partner.

However in the last 2 months, he's been approached by a pretty big name Strategic acquirer in the space to buy about 80% of the company at a 5-6x multiple, with a clause to buy the remaining 20% in about 3-5 years. My grandpa is getting older and wants to take chips off the table, which I can understand. The deal would allow him to transition out of the business in about 3 years, leaving some key family members, myself and the rest of management to take over in his absence. 

Essentially my question is twofold: 1.) Whether it's possible, given the probable acquisition in the next few months, for a management buyout to be done?; and if so, 2.) what would be the best way to structure that transaction? 

I feel there a few ways to go about this. Bear in mind, I don't expect to execute a significant buyout of the company; I'd be aiming for a few percent, depending on financing constraints.

I could be wrong, but maybe establishing a promissory note/seller financing arrangement with my grandfather would be ideal, assuming that he's willing. If he's not comfortable with that option, what would then be the best course of action in terms of seeking financing, and the ideal type of debt for this scenario? Ideally I'd be able to service the debt payments with cash flow from the business.

I'm clearly not an LBO expert, nor have I worked in PE before, so any wisdom the experienced people on here have to offer would be much appreciated. Let me know if you want me to clarify anything and I'll try to explain, within reason.


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