Managers who have gained experience in their careers as employed executives may be interested in self-employment. Some managers are looking for opportunities from a secure position to acquire a stake in a company to which they can contribute their skills and capacity and which they can continue to run on their own.
The scale depends on the management experience, the financial possibilities and the risk affinity of the prospective buyers. High-earning companies have a corresponding price, which managers often cannot “handle” with their possibilities. They then have two options: They can take on a correspondingly high bank loan, for which they are usually fully personally liable, or they can carry out the purchase together with an investment company. The investment company may take over majority shares and give the manager a minority stake in the company. Such a construct can be advantageous for a manager. They may also be able to build up assets via minority shares. Depending on the investment company, however, such a step can also lead to greater dependencies than a manager is familiar with from their time as an employee.
Example: A manager had the opportunity to acquire a stake in a profitable manufacturer of burners for the steel industry as part of an entrepreneurial succession plan. However, the purchase price appropriate for this company was too high to be borne by the manager alone. The manager involved an investment company he knew personally in the discussion, which was interested in the company. The offer that the investment company then made to the manager was, however, very one-sided and unattractive. They offered the manager a 5% stake and demanded a right of first refusal on terms that were completely unattractive. They also drastically cut the salary expectations that the manager had put on the table, but demanded his full commitment and reports at regular intervals. Before disclosing the target, the manager had entered into a confidentiality agreement with the investment company, which stipulated that the investment company was not allowed to bypass the manager on the deal. After the manager rejected the completely unacceptable offer, the investment company no longer felt bound by the prohibition on circumvention, closed the deal and appointed a hired managing director. The manager who had made the connection went away empty handed.
There are also specialist intermediary companies for the prospective buyer side, which accompany managers through the entire search and acquisition process. This can make sense for various reasons: Managers have learned to run businesses, but are usually not experienced in acquiring business operations. In addition, placement consultants can help managers properly assess their capabilities. They can also arrange financing options and assist in negotiating and formally drafting contracts.
Typically, they require an upfront payment (retainer) before they begin work, ongoing markdowns on a contingency fee, and then a contingency fee at the end. For managers seeking companies this way, it comes down to finding a suitable intermediary.