Management Buyout Opportunities: In a shaky economy a logical strategy for management is to focus on just hanging on to the business you have. For proactive management teams and owners it can be a time to reconfigure the business or ownership in order to realize in greater benefits in the future. Such is probably the case in recently announced buyout of Landry’s Seafood (NSYE: LDY).
Looking at the proposed buyout terms, which include buying out all the outstanding shareholders at $21 per share and assuming $885 million of debt, the most interesting aspect is the upside for the future majority owner, Company CEO and Chairman Tilman Fertitta. Under the shareholder approved plan, Mr. Fertitta will roll over his existing equity, (approx. 39%), invest another $90 million of cash and raise an additional $50 million of preferred equity. (Source: http://www.creditinvestmentnews.com/.) Making some assumptions, Mr. Fertitta will likely increase his ownership stake from 39% to 80% of the company stock.
It’s easy to look at such going-private transactions as a quick “flip” strategy of taking a company private only to take it public again when the economy or capital markets improve. But Landry’s buyout offer is $21 per share equating to a market value of the Company of $415 million and the highest market value for Landry’s in the last three years was a little over $35 per share (December 2006) equating to company market value of $565 million. The historical highs of the stock and the accepted buyout price do not lend themselves well to a company that can be easily ‘flipped’ back to the public market when the overall market improves. This buyout will work based on improving the business which means increasing free cash flow and paying down debt.
Market slowdowns or changing economies often uncover long held differences between owners within a company. During times of change, proactive owners to can take advantage of such situations and buyout shareholders that are now willing to sell in order to reduce their risk or put their capital elsewhere. Most important, it creates valuable opportunity for a co-owner to gain full control of his or her destiny and do the things they believe will create substantial value in the future.
Lantern Capital Advisors specializes is management buyouts and helps companies achieve financing in order to execute successful management buyout transactions. To contact Lantern’s Management Buyout Services, visit our Lantern Advisors Website