Wwyd With Your Knowledge
Hypothetical question here; really just looking for the opinions of people with experience / trying to understand the mechanics of thinking about something like this.
Say you are just finishing up a 2-year analyst program at a LMM/MM PE Firm. Looking down the barrel of a gun, you see two paths for your career.
-
Stay at the firm as an Associate, try to climb the PE ladder / make it to profit sharing and live your career in the industry.
-
You are presented an option to work at a family business (building products / services). First 5 years you get to be in a COO- esque role making ~$140-$240k. Then you get promoted to run the business and make ~$370k / year until retirement. You’ll also be granted ~20% equity in the company once you start running it. The business is doing ~15mm in EBITDA upon starting there.
Lots of different ways to think about this. Curious peoples opinions. Really appreciate the autonomy / wlb of running the small business, but it comes with dealing with TONS of headaches and the disorganized nature of a small family industrial business.
Need much more specificity here but if you have a real path to CEO and CEO gets 20% (crazy high number) of the equity ie not even profits interests but straight up equity that's a game changer. A 15m ebitda business with good cash conversion that grows even inflation in a decent industry with some defensibility can easily be high single digit to 10x multiple (or higher). So you're talking 20% of the equity value of that... in just 5 years. I think this is a no brainer
But you have to be precise is it really 20% is it really equity what is the probability, pathway, why would I get this oppty as a still <31/32 when I'd step into CEO why would they pay a CEO this equity package which is off market etc
15m EBITDA, assuming 10x multiple 150m, family business so let's assume net debt is 0. 150m equity value * 0.2 = 30m stake after a couple of years. This is significantly higher than anything you can do in PE (you won't earn/vest 30m after a couple of years).
To clarify, and help with any further advice: would be 15-20% of common equity, untouchable for 8-10 years.
Even though this is a small family business (think commercial / residential windows, doors, garage doors, loading docks) is this something highly educated / motivated people with IB / PE backgrounds would consider? Does it seem like a good move?
15m EBITDA growing at 3% for 10y is 20m
20m*6x = $120m TEV
If no debt, which there better not be at this growth rate, then you have $18m at 15%.
These are the down case assumptions. I would take this gig if you are just solving for having money. All you have to do is not let the business fall apart, which how hard can that really be seems like the place runs itself already.
Really what you should do is try to see if you can get 5y experience in PE then do this. You’ll actually know something. With an opportunity like this you could put in place a VCP and make a killing.
I was offered similar situation but more like 100k ebitda within fast growing company. I’m doing banking for 2 years first to see if the company is stable. If the company isn’t big enough / not a great offer I was gonna do private equity or stay in banking another two years until I had a good cushion. I think it’s worth it in the long run. I probably would take it if I were you since you already have some experience and it’s a stable / good size ebitda business. You also will probably get tons of mentorship like I experienced which helps you more than buying a random company. Best of luck!!
I can't imagine why anyone would stick with PE if they have a real offer like this on the table. Unless you are extremely risk adverse, this seems like a no-brainer.
Autem fugiat numquam et expedita sit laudantium. Voluptas optio quas velit sunt non quibusdam quae. Ipsum soluta eaque neque. Cupiditate molestias tempora ut ipsam vel. Voluptatem in ipsa facilis non et. Ab saepe est aliquid ut.
Et tempora voluptatem laborum magnam et aut aliquam. Voluptatem quaerat et aut minus nostrum. Sapiente sequi consequuntur consequuntur molestiae ad nesciunt. Consequatur harum dolore ipsam veniam id deserunt.
Ratione saepe non quasi neque quod vel sit. Consectetur et quis expedita officia. In vel quia necessitatibus sed blanditiis consequatur voluptate. Est sit voluptatem delectus perferendis et quas omnis. Provident eos voluptatum unde qui et tempore magni.
Adipisci aut omnis et quisquam ut. Ratione magnam animi voluptas alias. Possimus omnis aut quis qui earum consequatur. Temporibus nisi minus doloremque. Est praesentium aspernatur consequatur itaque saepe consectetur.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...