Way OT: How does an EE buy his/her employer (company) ?

Rodo · Mar 29, 2004

Hi all...

I realize this is way off topic. More related to finance (I think) but I
want the opinion of Electrical Engineers that may have done this.

I work for company A, I've been there for about 2 years. I'm the junior EE
(2 yrs experience, first job out of college). Company A is pretty much
"surviving" (last 6-7 yeas like this). They sell a lot (6 millions/yr).
Profits are either very low (<300k/yr) depending on the year. The level of
organization is terrible and money is always short. Management just do not
see the light.

I see potential in the company. I know they want to sell it (employee own,
not me though). I imagine the sale tag is in the million range, rather
bloated since most of the equipment is rather old. How do you know the price
is right ?

So, the questions would be. How do you buy them out ? BTW I know this is a
complex issue so I'm more looking for pointer in the right direction - or NS

- than real answers.

Thanks

Jim Thompson · Mar 29, 2004

On Sun, 28 Mar 2004 18:10:18 GMT, "Rodo" <dsp1024@yahoo.com> wrote:

Hi all...

I realize this is way off topic. More related to finance (I think) but I
want the opinion of Electrical Engineers that may have done this.

I work for company A, I've been there for about 2 years. I'm the junior EE
(2 yrs experience, first job out of college). Company A is pretty much
"surviving" (last 6-7 yeas like this). They sell a lot (6 millions/yr).
Profits are either very low (<300k/yr) depending on the year. The level of
organization is terrible and money is always short. Management just do not
see the light.

I see potential in the company. I know they want to sell it (employee own,
not me though). I imagine the sale tag is in the million range, rather
bloated since most of the equipment is rather old. How do you know the price
is right ?

So, the questions would be. How do you buy them out ? BTW I know this is a
complex issue so I'm more looking for pointer in the right direction - or NS
- than real answers.

Thanks

480)460-2350 | |
| E-mail Address at Website Fax

Spehro Pefhany · Mar 29, 2004

On Sun, 28 Mar 2004 18:10:18 GMT, the renowned "Rodo"
<dsp1024@yahoo.com> wrote:

Hi all...

I realize this is way off topic. More related to finance (I think) but I
want the opinion of Electrical Engineers that may have done this.

I work for company A, I've been there for about 2 years. I'm the junior EE
(2 yrs experience, first job out of college). Company A is pretty much
"surviving" (last 6-7 yeas like this). They sell a lot (6 millions/yr).
Profits are either very low (<300k/yr) depending on the year. The level of
organization is terrible and money is always short. Management just do not
see the light.

I see potential in the company. I know they want to sell it (employee own,
not me though). I imagine the sale tag is in the million range, rather
bloated since most of the equipment is rather old. How do you know the price
is right ?

So, the questions would be. How do you buy them out ? BTW I know this is a
complex issue so I'm more looking for pointer in the right direction - or NS
- than real answers.

There is no "right" price except one that both seller and buyer can
agree on. There may be no such price, or there could be a range of
prices. There are a few pat formulas that depend on "reasonable
profits" but they are pretty much useless for an unprofitable company.
Are there any accumulated liabilities? Lawsuits? Commitments to
unprofitable endeavors? There may be other factors beyond price- job
security for the sellers, perhaps?

I have to wonder how accurate your assessment of the potential is,
given your short career and presumably equally short experience in the
industry. Someone actually considering lending you money for a buyout
will be MUCH more critical. Is the industry growing? How fast? Who are
the major competitors? Would the profit come from cutting costs or
increasing sales while keeping costs under control? What will the
competitive environment look like in 5 years? What would you, an EE,
bring to the table? You should think about these questions (not
necessarily post answers).

This could be a good opportunity, but you might want to consider
partnering with others that have skills in areas you currently lack.
Few are good at accounting, sales, marketing, management and technical
matters, and failure to do any one of those adequately can kill a
manufacturing company. Technical is probably the slowest.. and without
sales, as they say, "nothing happens".

Hope this helps. In the meantime, get some books on being an
entrepreneur and read them if you have not already.

Best regards,
Spehro Pefhany
--
"it's the network..." "The Journey is the reward"
speff@interlog.com Info for manufacturers: http://www.trexon.com
Embedded software/hardware/analog Info for designers: http://www.speff.com

John Woodgate · Mar 29, 2004

I read in sci.electronics.design that Rodo <dsp1024@yahoo.com> wrote (in
<eyE9c.6998$u_2.1524@nwrddc01.gnilink.net&gt

about 'Way OT: How does an
EE buy his/her employer (company) ?', on Sun, 28 Mar 2004:

So, the questions would be. How do you buy them out ?

If you gotta ask, you are not one of those juvenile high-flyers, so you
are not likely to succeed in a buy-out. The JHFs seem to know more or
less instinctively (or so it seems) just how to do what they want, **at
the time they want to do it (which is very important)**, and enjoy a
very high success rate per project, around 50%. (Normal business success
rates are about half that!)

For example, some years ago, vulture^H^H^H^H^H^H^H venture capitalists
were queuing up to finance guys like you, but they aren't now, at least,
not in Yoorup.
--
Regards, John Woodgate, OOO - Own Opinions Only.
The good news is that nothing is compulsory.
The bad news is that everything is prohibited.
http://www.jmwa.demon.co.uk Also see http://www.isce.org.uk

John Woodgate · Mar 29, 2004

I read in sci.electronics.design that Spehro Pefhany <speffSNIP@interlog
DOTyou.knowwhat> wrote (in <cs7e605oks098nee1e23slpe9lb8qstauf@4ax.com&gt

about 'Way OT: How does an EE buy his/her employer (company) ?', on Sun,
28 Mar 2004:

In the meantime, get some books on being an
entrepreneur and read them if you have not already.

My impression is that books don't help, because the entrepreneurs don't
know how they make more right decisions than the other guys. It's a
totally subconscious process, like lightning calculation. Some of them
are fed plausible stories by their PR people, but I've talked to one or
two and when you get down to the truth, they say stuff like, 'It just
seemed completely obvious at the time that I needed to buy my third
largest competitor/sack my entire middle management/move to Antarctica.'
--
Regards, John Woodgate, OOO - Own Opinions Only.
The good news is that nothing is compulsory.
The bad news is that everything is prohibited.
http://www.jmwa.demon.co.uk Also see http://www.isce.org.uk

John Larkin · Mar 29, 2004

On Sun, 28 Mar 2004 18:10:18 GMT, "Rodo" <dsp1024@yahoo.com> wrote:

Hi all...

I realize this is way off topic. More related to finance (I think) but I
want the opinion of Electrical Engineers that may have done this.

I work for company A, I've been there for about 2 years. I'm the junior EE
(2 yrs experience, first job out of college). Company A is pretty much
"surviving" (last 6-7 yeas like this). They sell a lot (6 millions/yr).
Profits are either very low (<300k/yr) depending on the year. The level of
organization is terrible and money is always short. Management just do not
see the light.

Sounds like cash management is bad, but a 5% profit is pretty normal.
There's not a lot of sense in retaining much more, and few companies
do.

I see potential in the company. I know they want to sell it (employee own,
not me though). I imagine the sale tag is in the million range, rather
bloated since most of the equipment is rather old. How do you know the price
is right ?

Traditionally, a small business like this would sell for 1-2 times
annual sales, 6-12 million. Might be a lot less if they're really in
decline. The equipment is usually a tiny fraction of the worth of a
company.

So, the questions would be. How do you buy them out ? BTW I know this is a
complex issue so I'm more looking for pointer in the right direction - or NS
- than real answers.

The current owners might accept a buyout with long-term payout from
earnings *if* they were fairly confident that the new management could
improve things substantially. So you'd have to form a buyout team with
all the talents required to make it so, and you'd have to get the
existing staff, or at least the worthwhile fraction of same, to buy in
with enthusiasm.

You *need* a good lawyer involved here. Where are you? What does the
company do?

John

Ken Smith · Mar 29, 2004

In article <YB6DWZGa4yZAFwQh@jmwa.demon.co.uk>,
John Woodgate <noone@yuk.yuk> wrote:
[....]

My impression is that books don't help, because the entrepreneurs don't
know how they make more right decisions than the other guys. It's a
totally subconscious process, like lightning calculation. Some of them
are fed plausible stories by their PR people, but I've talked to one or
two and when you get down to the truth, they say stuff like, 'It just
seemed completely obvious at the time that I needed to buy my third
largest competitor/sack my entire middle management/move to Antarctica.'

Here's an interesting idea.

Gather about 10000 people together. Start flipping a coin and having the
people in the group call each flip. After about 8 or 9 flipps a few of
the members will start to look smug because they got every one right. By
your tenth flip one of them will be selling a book on how to guess coin
flips.

--
--
kensmith@rahul.net forging knowledge

Frank Bemelman · Mar 29, 2004

"Ken Smith" <kensmith@violet.rahul.net> schreef in bericht
news:c47b8e$kcv$6@blue.rahul.net...

In article <YB6DWZGa4yZAFwQh@jmwa.demon.co.uk>,
John Woodgate <noone@yuk.yuk> wrote:
[....]
My impression is that books don't help, because the entrepreneurs don't
know how they make more right decisions than the other guys. It's a
totally subconscious process, like lightning calculation. Some of them
are fed plausible stories by their PR people, but I've talked to one or
two and when you get down to the truth, they say stuff like, 'It just
seemed completely obvious at the time that I needed to buy my third
largest competitor/sack my entire middle management/move to Antarctica.'

Here's an interesting idea.

Gather about 10000 people together. Start flipping a coin and having the
people in the group call each flip. After about 8 or 9 flipps a few of
the members will start to look smug because they got every one right. By
your tenth flip one of them will be selling a book on how to guess coin
flips.

Very nice

--
Thanks, Frank.
(remove 'x' and 'invalid' when replying by email)

JeffM · Mar 29, 2004

I know they want to sell it (employee own, not me though).
Rodo

A caveat:
http://216.239.53.104/search?q=cache:JWvS28_bT1gJ:www.nationalreview.com/script/printpage.asp%3Fref%3D/nrof_bartlett/bartlett120902.asp+http://www.nationalreview.com/nrof_bartlett/bartlett120902.asp+airlines+employee-owned

Spehro Pefhany · Mar 29, 2004

On Sun, 28 Mar 2004 20:57:14 +0100, the renowned John Woodgate
<jmw@jmwa.demon.contraspam.yuk> wrote:

I read in sci.electronics.design that Spehro Pefhany <speffSNIP@interlog
DOTyou.knowwhat> wrote (in <cs7e605oks098nee1e23slpe9lb8qstauf@4ax.com&gt
about 'Way OT: How does an EE buy his/her employer (company) ?', on Sun,
28 Mar 2004:

In the meantime, get some books on being an
entrepreneur and read them if you have not already.

My impression is that books don't help, because the entrepreneurs don't
know how they make more right decisions than the other guys. It's a
totally subconscious process, like lightning calculation. Some of them
are fed plausible stories by their PR people, but I've talked to one or
two and when you get down to the truth, they say stuff like, 'It just
seemed completely obvious at the time that I needed to buy my third
largest competitor/sack my entire middle management/move to Antarctica.'

They can tell you how the accounting and banker types think, which you
need to know to get to first base with them. They can explain the
mechanics of setting up and maintaining nation-wide sales networks and
about exporting. They can't put the fire in your belly or tell you how
to be creative any more than a book an electronics can make you a
great designer.

Best regards,
Spehro Pefhany
--
"it's the network..." "The Journey is the reward"
speff@interlog.com Info for manufacturers: http://www.trexon.com
Embedded software/hardware/analog Info for designers: http://www.speff.com

The Real Andy · Mar 29, 2004

"Rodo" <dsp1024@yahoo.com> wrote in message
news:eyE9c.6998$u_2.1524@nwrddc01.gnilink.net...

Hi all...

<snip>

So, the questions would be. How do you buy them out ? BTW I know this is
a
complex issue so I'm more looking for pointer in the right direction - or
NS
- than real answers.

I have been (still going) through this process now. Do yourself a favour and
get an external law firm involved, that is, one that neither you or the
company use. Choose a firm that specialises in company mergers and
aquisitions. It may well cost you a few tens of thounsands in cash, but it
is better than buying a business that leaves you with a million dollar debt
if it goes belly up. A good firm will also set the company up in a way that
will minimise the tax implications to both you and the seller.

This is the best way to do it. Never attempt a company buyout without
someone who know all the in's and out's of how it is done. If it is a staff
buy out and other staff won't aggree, bail out cause it will never work.

Frank Raffaeli · Mar 29, 2004

"Rodo" <dsp1024@yahoo.com> wrote in message news:<eyE9c.6998$u_2.1524@nwrddc01.gnilink.net>...

Hi all...

I realize this is way off topic. More related to finance (I think) but I
want the opinion of Electrical Engineers that may have done this.

I work for company A, I've been there for about 2 years. I'm the junior EE
(2 yrs experience, first job out of college). Company A is pretty much
"surviving" (last 6-7 yeas like this). They sell a lot (6 millions/yr).
Profits are either very low (<300k/yr) depending on the year. The level of
organization is terrible and money is always short. Management just do not
see the light.

I see potential in the company. I know they want to sell it (employee own,
not me though). I imagine the sale tag is in the million range, rather
bloated since most of the equipment is rather old. How do you know the price
is right ?

So, the questions would be. How do you buy them out ? BTW I know this is a
complex issue so I'm more looking for pointer in the right direction - or NS
- than real answers.

Lots of good advice in this thread. There were a few more pointers I

thought of:

1) Be discrete. Just telling somone how you might make the company
more valuable drives the price up if it's plausible. Also, you may
develop new enemies if you are trying to capitalize on something
valuable.

2) Most of the value of the company might be in their name, customer
base, or internal resources (employees). Determine how much of this
you can realistically take with you, and how much will be stolen or
leached off by the former owners or by your competitors.

3) Deal with trustworthy people. There is no lawyer, handshake or
agreement that makes it worthwhile to do business with someone who is
basically dishonorable.

4) Listen to questions of those who are putting up the cash. They will
want to protect their investment. Every question they ask is a good
one.

Frank Raffaeli
http://www.aomwireless.com/

Roy McCammon · Mar 30, 2004

Rodo wrote:

Hi all...

I realize this is way off topic. More related to finance (I think) but I
want the opinion of Electrical Engineers that may have done this.

I work for company A, I've been there for about 2 years. I'm the junior EE
(2 yrs experience, first job out of college). Company A is pretty much
"surviving" (last 6-7 yeas like this). They sell a lot (6 millions/yr).
Profits are either very low (<300k/yr) depending on the year. The level of
organization is terrible and money is always short. Management just do not
see the light.

I see potential in the company. I know they want to sell it (employee own,
not me though). I imagine the sale tag is in the million range, rather
bloated since most of the equipment is rather old. How do you know the price
is right ?

So, the questions would be. How do you buy them out ? BTW I know this is a
complex issue so I'm more looking for pointer in the right direction - or NS
- than real answers.

I never met a big shot who didn't have a big ego.
That means that there are plenty of people with
money who think that they could do a better job
with the company than the people who are there.
That means they figure that given the 6M/yr sales
that they could make it much more profitable, so
they will pay much more than the 300k/yr would
justify. Short answer, the company can probably be
sold for twice its annual sales, ot 12M.

--
local optimization seldom leads to global optimization

my e-mail address is: <my first name> <my last name> AT mmm DOT com

Way OT: How does an EE buy his/her employer (company) ?

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