Is This Opportunity a No Brainer?
I've pondered a unique opportunity for a while and I'm curious if I'm overthinking things. Would love some feedback on whether this decision is a no brainer.
Essentially the opportunity is that I could take over my father's business, and grow it with the hopes of selling to PE or a strategic within 5-7 years. He's willing to structure the vast majority of the acquisition as a VTB, making the 'purchase price' next to nothing for me. He'd also be willing to stay on in a consulting capacity. While attempting to grow the business I'd be able to clip ~75-100% of the same all-in payout I made as a first year IB analyst.
For context on the business, it's a renovation retail related business that has been operating for many decades. It has steady growth, generates ~$2.5M of revenue, with ~15% EBITDA margins (with his own salary baked in). Clean balance sheet, has never held debt. He's an old guy and understands there's a magnitude of levers that can be pulled to optimize and grow the business (e.g. create an online presence, automate various back office / administrative functions, optimize the referral base to drive more customers, etc.), but he's too old / tired / has made enough money to give a shit.
I have <4 years of IB M&A and PE buyout experience. The only reason I haven't made the jump is because:
1. Running a business is a ton of work, even more so than IB or PE. I'm not afraid of working hard, but I appreciate that I'm able to make an attractive income in my current seat, which scales quite nicely, for doing less work / having less stress than operating a company; and
2. It'd be a lonely process as I'd essentially have to move to my home city (tier 3 at best), essentially abandoning my social life (although I'd only be a couple hours away from my current T1 city).
I've always thought about trying my hand at entrepreneurship, and I feel like this could be the safest bite at the apple I could ever have. Curious to hear some thoughts.
You literally have a ticket to financial freedom. If I where you I would pounce on that opportunity ASAP.
Stop thinking about yourself for a second though. Not an attack on you, but your parents deserve to retire and rest in peace. You taking over, I'm assuming, would reduce their buyout to next to nothing, forcing them to rely on you and current savings for their retirement. Let them collect that $XXmm by selling it off and living in peace. You have the ability to make your own career anyways.
OP here. This is a really great point you raised that has me thinking.
To provide more context, they've received offers in the past, but were below expectations and involved the old man staying on for multiple years where he'd be heavily involved in the day-to-day. This is because the strategic bidders viewed the success of the business as tied to his leadership/expertise. In reality, the business could certainly be more independent than it currently is, but he has a micro-manager leadership style. Part of my efforts would be to structure the operations in a way that reveals how 'plug-and-play' the operations actually are. Thus he doesn't have the best exit options as it currently stands.
Perhaps I could take on third-party debt to provide a reasonable upfront cash component, while keeping the VTB for the remainder, thus meeting in the middle to provide a 'reasonable' cash exit (that he would've received should he have sold to a strategic) while still providing an opportunity for myself to enter at a good price. Plus once the VTB is fully paid out the all-in exit would be higher than the old low ball offers due to their misunderstanding of the business.
And what if - just if - it goes wrong for some reason either in our outside your control? What if you happen to be no good at running a business? That'd destroy their future value even if the other offers were not optimal either. I'd also struggle to look my parents in the eye but that's just me. If your parents are loaded and you're 'taking over the family business' to run it for cash as a nice family thing then it's different, but I wouldn't made the bet as I understand it at the moment.
OP here - thanks for the response. This is certainly something I've thought about it, as it's absolutely the top risk. However, based on my understanding of the business (I grew up around it all my life and also worked there for most of my life), it's a risk I'd be willing to stomach given that I know how stable it is. It's a cash cow, and instead of that cash sitting on the BS I'd love to use it to invest in the business. That way the base business provides the support / floor of value, and any improvements made incrementally over time would be fully funded using the company's cash. Essentially structured as "here's the base business, so I know my floor outcome," with a free call on the upside of any improvements, which I've identified to be non-destructive to value (creating an online presence, creating partnerships with renovation-related businesses to drive more customers, etc.). It's not like the core of the business would be restructured, which I believe the risk of blowing up the business would then be very real.
Maybe a different viewpoint on this, but maybe you can sell off the silverskin and just keep the underlying foundation of the business? Make it easier for your family to manage, and you part-time, even if it means selling the excess below-market? For this, the point is the make the workload on your parents as easy as possible.
Why not join the business for six months to get the lay of the land while your dad’s still running the show. If you like it and can handle it, structure the deal and go for it. If it’s not for you, he can still explore selling to someone else. You can apply to business school and/or go back to PE if it’s not right. It requires moving but 6 months should be enough to figure out if you’re 110% in for the long haul.
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