After being acquired, Diego Caicedo’s startup KLYM saw its parent company go bankrupt. He and his co-founder orchestrated a management buyout (MBO) to reclaim the business. This guide breaks down the lessons learned from navigating M&A red flags, managing external shocks, and the tactical steps to execute an MBO.
Key takeaways
- Stress-test your business model against external shocks you can't control.
- Create a red-flag checklist before signing any term sheet, especially in a rushed M&A deal.
- Understand the mechanics of a management buyout (MBO) before you need it.
- When an acquirer goes bankrupt, align with your original investors to reclaim your assets.
- Master the art of the pivot; your operational experience is transferable across industries.
- Secure your debt and equity financing from separate, diversified sources to reduce risk.
Your Dream Exit Just Became a Nightmare
You did it. You navigated the M&A process, signed the deal, and your startup was acquired. Then, the unthinkable happens: the company that bought you goes bankrupt. This is the exact situation Diego Caicedo, founder of KLYM, found himself in. After a whirlwind acquisition by a London-based firm, his company was suddenly owned by a bankrupt parent.
Most founders would see this as a fatal blow. But for Diego and his co-founder, it was an opportunity. They orchestrated a complex management buyout (MBO), reclaimed their company from the wreckage, and continued scaling. KLYM has now deployed over $1.5 billion in financing to small and medium-sized enterprises (SMEs) across Latin America.
This is a guide to surviving the unsurvivable. It breaks down how to navigate a catastrophic acquisition, the mechanics of buying your company back, and the hard-won lessons from a founder who has been through it all.
Lesson 1: De-Risk What You Can, Manage What You Can't
Before KLYM, Diego had two major at-bats as an entrepreneur. Both ended in failure due to massive, external shocks. These early failures provided the scar tissue necessary to navigate the later crisis with KLYM.
His first company was a noble idea: a vertically integrated coffee producer that bought beans from small Colombian farmers, then roasted, packaged, and sold them to US supermarkets. The business was growing until a sudden change in weather patterns decimated the coffee crops. The supply chain dried up, and the business was hammered.
Pivoting from agriculture, Diego jumped into a mining boom in Colombia, learning the M&A landscape and eventually building a business to help major mining companies acquire local properties. The business thrived until commodity prices suddenly crashed by 50%, wiping out the market.
The Founder's Mistake: Confusing External Risk with Bad Luck
Twice, factors outside Diego's control killed his company. It’s easy to dismiss this as "bad luck," but experienced operators see it as a failure to properly price and plan for external risk. You cannot control the weather or global commodity cycles, but you are not helpless.
Isolate your variables. Your business has internal factors (product, team, operations) and external ones (market cycles, regulation, commodity prices). You must excel at the internal factors so you have the resilience to withstand shocks from the external. · Build a war chest. The answer to unpredictable risk is a cash buffer. When markets are good, you should be disciplined about building reserves, not just pouring fuel on growth. A healthy balance sheet is your best defense against a storm. · Scenario-plan for disaster. Ask the tough "what if" questions. What if our primary supply chain is cut off? What if market demand for our product halves in six months? Run the numbers and have a contingency plan ready.
Lesson 2: The 72-Hour Acquisition Red Flag
After his early ventures, Diego identified a massive opportunity in fintech: providing working capital to the underserved SMEs in Latin America. He and a co-founder launched KLYM. Soon after, they merged with another founder, Andres, who was building an identical business.
While seeking a Series A, investors introduced them to a similar, well-funded company in London. An acquisition discussion started, and it moved at lightning speed. The entire due diligence process was crammed into just 72 hours before they closed the deal, which included their Series A funding.
A Founder's Checklist for Rushed M&A Deals
A compressed timeline is often a tactic to prevent you from discovering underlying problems. If you find yourself in a similar situation, you must get answers to these questions:
Why the rush? Is there a legitimate external deadline, or are they creating artificial pressure? Be deeply skeptical of manufactured urgency. · What is their financial health? Demand to see their balance sheet, cash flow statements, and debt obligations. A healthy company doesn't need to rush a strategic acquisition. An unhealthy one might be trying to close a deal before bad news leaks. · What is the strategic fit, post-integration? Ask for a 100-day integration plan. If they can't articulate precisely how your team, product, and customers fit into their future, they may not have a clear strategy. · Who are we really getting in bed with? Talk to former employees and portfolio companies of the acquirer. A rushed timeline prevents proper back-channel referencing. Do it anyway.
Just nine months after the deal closed, the London-based acquirer went bankrupt. The speed of the deal suddenly made sense—it was a desperate move by a flailing company, not a strategic one.
Lesson 3: The Playbook for a Management Buyout (MBO)
The parent company was in bankruptcy proceedings, and KLYM was now just an asset to be liquidated. Diego and Andres refused to let their company die on the balance sheet of a failed acquirer. They decided to buy it back.
A management buyout is when the existing managers of a company purchase it from its owners. Here is a tactical breakdown of how to approach it.
Step 1: Huddle with Your Core Supporters
Your first calls should be to your original co-founders, key team members, and the investors from before the acquisition. You need to gauge their appetite for a fight. Do they believe in the mission enough to go through another complex, risky process? Diego and Andres successfully rallied their team and original investors to back the MBO.
Step 2: Lawyering Up and Approaching the Administrator
A bankrupt company is controlled by an administrator or trustee whose job is to recover as much money as possible for creditors. You, as the management team, are in a unique position. You know the asset better than anyone and can run it effectively. You need legal counsel to approach the administrator with a formal offer to purchase the assets of your division.
Step 3: Financing the Buyout
You’re essentially raising a new funding round to buy your own company. The capital comes from three potential sources:
Management's own capital: The founding team often needs to put their own skin in the game. · Your original investors: These investors may choose to roll their previous equity into the new entity or even contribute new capital to help finance the purchase. · New investors: You may need to bring in new capital from VCs or lenders who specialize in special situations. The story is compelling: you're a proven team buying a known asset at what is likely a discounted price.
Step 4: The Negotiation
The administrator’s goal is to get the best price. Your goal is to get a fair price that allows the business to survive and thrive. The key leverage you have is speed and operational continuity. An outside buyer would face uncertainty and a learning curve. You can offer a clean, fast deal that preserves the value of the asset, which is often an attractive proposition for the administrator.
By leading this process, Diego and Andres successfully bought back KLYM and regained control of their destiny. Today, the company continues to operate and grow, a testament to their refusal to quit.
How to Apply This This Week
You may not be facing a bankrupt acquirer today, but the lessons from Diego's journey are universal. Here’s how to act on them now:
Run a pre-mortem on external risks. Get your team in a room and brainstorm the top three external factors that could kill your business (e.g., a platform policy change, a new regulation, a recession). What’s your plan for each? · Review your investor relationships. Are your investors just a source of capital, or are they true partners who would back you in a crisis? If you don’t know the answer, schedule a call and find out. · Educate yourself on M&A and MBOs. You don't need to be an expert, but understanding the basic mechanics of acquisitions, bankruptcies, and buyouts will make you a more prepared founder. Read up on the key terms and processes. · Stress-test your storytelling. Diego emphasizes that storytelling is key. Can you articulate your company's core purpose and value in a way that would rally a team and investors through a near-death experience? Your mission is your ultimate defense.
Frequently asked questions
- What is a management buyout (MBO)?
- An MBO is a transaction where a company's existing management team purchases the assets and operations of the business they manage. This often happens when a parent company decides to sell a division or, in this case, goes bankrupt.
- What are major red flags in a fast acquisition process?
- Be wary of extreme pressure to close, a lack of clear strategic vision from the acquirer, and instability in the acquirer's core business. A 72-hour due diligence process is a massive red flag that suggests unseen risks.
- How do you finance a management buyout?
- Financing an MBO typically involves a combination of personal funds, rolling over equity from existing friendly investors, and raising a new round of capital (equity or debt) specifically for the purpose of the buyout.
- What is the first step after your acquiring company declares bankruptcy?
- Immediately contact your original legal counsel and key investors. Your goal is to understand your legal position and form a coalition to negotiate with the bankruptcy administrators to repurchase the assets of your original company.
