Demonstrated by more than 10 successful mergers by Derik Fays firm 3F Management that has generated over 4 Billon dollars in exit value for merged companies and more $400M for Fays firm over the past 5 years.
Derik Fay
The solution to the imbalance of large conglomerate domination is a merger of multiple smaller competent companies that at add synergistic value to each other that when combined exceed the large companies value and resources, or at a minimum make the merged companies enough of a perceived threat to be acquired by the conglomerate company
Simultaneously, by doing so the smaller now merged companies provide synergistic value to one another while also providing a shared value and exit multiple by combining both resources and combined EBITDA that demonstrates exciting exit multiples by doing so.
There are inherit challenges that exist and does require a balance from the umbrellas company management side top down that understands the requirements and delicate balance between whole ownership at the individual company level versus the umbrella EBITDA owned level that is based on pro rata ownership at exit.
The sole purpose of the “umbrella / or holding company” is to serve as a consolidated company that represents the combined revenues, resources, and more importantly, newly established buying power and market consolidations of the smaller merged companies. These represent the two major advantages that the large conglomerates have over the competition.
1.Buying power
2.Consolidation and control of markets which lead to further buying power , reduced costs, and increased profits.
Structure:
1.Multiple smaller companies merge into one Umbrella or holding company
2.All entities retain 100% ownership of there company
3.All companies have their resources and best practices making all companies involved stronger
4.Umbrellas company represents all actions as a now consolidated large company
5.At the Umbrella level pro rata ownership is determined by pro rata EBITDA, Q of E.
6.5a. If company 1 EBITDA verified by QofE represents 40% of the overall EBITDA, at exit that company will realize 40% of the exit value.
7.Umbrella company takes equity in each of the merged companies in exchange for constructing the merger and managing the overarching company day to day.
8.Umbrella company is comprised of C suit team from 3F Management and advisory board comprised of additional board members from the individual merged companies.
Each industry has a “giant”. Conversely each industry has countless sub sectors that has very successful and competent companies that in of themselves could never compete with the industry giant BUT when consolidated, strategically, can begin to take market share from that giant.
The result is inevitably, which is also the main purpose of the structure a meaningful buyout from said “giant”. The value for the merger for the smaller companies is an exit multiple far greater than could ever be achieved individually due to the enhanced EBITDA, combined market share, and perceived “threat” to the market giant.
