Bringing Value Back to the Company
In the fall of 2021, AEC Advisors was engaged by a ~$70 million Northeast US-based diversified transportation, water, and environmental engineering firm to evaluate the company’s capital structure and ownership program, and present our findings and recommendation to the Company’s Board of Directors.
Due to various challenges in prior years and the company’s aversion towards borrowing debt, the company had permitted former employees to continue to own shares beyond their employment. The tradeoff was that (A) the company did not need to outlay cash or increase its debt repayment obligations to buy them out, but (B) over time, the effective ownership by former employees swelled to 30% of the company’s shares.
As a result, the remaining current employee shareholders were only receiving ~70% of the gains in share value despite being 100% responsible for the decision-making, client relationships, and management of the company.
Working closely with management and the Board of Directors, AEC Advisors developed a financial model to evaluate the feasibility of repurchasing 30% of the company’s shares and the impact to the company’s balance sheet, liquidity, and internal ownership program.
We developed sensitivity analyses to stress-test the outcomes based on upside and downside scenarios; highlighted potential shortcomings; identified risk mitigation levers; and projected the impact of this repurchase transaction over the next 5 years to quantify the potential dollar-value costs and gains that could be achieved.
We provided our analysis and recommendation to the Board of Directors, and then to the 50+ employee shareholders.
In December 2021, the Board of Directors approved and proceeded with the share redemption transaction, bringing 100% of the company’s future gains in equity value back inside the firm.