We are experts in both vendor backed as well as bank and private equity backed management buyouts (“MBOs”). Structured correctly, MBOs can be an excellent way to help you pass on the business to the management team.
An MBO allows the incumbent management team to take an equity stake in the business. If the management team share the same vision as the current shareholders and both parties’ aspirations are aligned, a transaction can be completed with relative ease.
Bishopsgate can advise on the deal structure, valuation, feasability and the sources of funding.
Funding can be sourced from vendors, banks, private equity firms, alternative lenders, or from the management team’s personal wealth. We are also well placed to advise clients looking to refinance existing debt facilities or raise new debt funding lines. Bishopsgate has long standing and established relationships with all types of funders and using our experience can negotiate to achieve competitive pricing and the very best terms.
MBO transactions typically allow the vendor to extract a significant proportion of value today whilst maintaining a minority stake in the “newco” structure.
Key Considerations
Is the management team up to the task?
Management will be ‘stepping up’ and assuming control of the business and you will need to assess the following:
- Expertise and Experience: Assess the team’s collective experience, skills, and achievements within the company and their relevant industry.
- Leadership and Strategic Vision: Evaluate their leadership qualities, strategic thinking, and the clarity of their vision for the company post-buyout.
- Execution Track Record: Review their past performance in implementing strategies and achieving business goals.
- Industry Knowledge and Relationships: Consider their understanding of the market, industry relationships, and ability to navigate industry dynamics.
- Innovation, Adaptability, and Long-Term Commitment: Assess their innovative approach, adaptability to change, and their commitment to the long-term success of the company.
Maximising value vs supporting the management team?
Balancing the maximisation of value in management buyouts (MBOs) with avoiding over-gearing the business is crucial. Maximizing value involves a fair valuation and a financing structure that benefits both shareholders and the company without excessively burdening it with debt, as usually, the management team buying in do not have the capital to purchase the company outright, and therefore require borrowings. Typically, this borrowing is in the form of bank debt or vendor loan notes.
The management team’s capability to lead post-buyout significantly impacts the company’s future value. On the flip side, avoiding over-gearing is essential for the business’s long-term health, necessitating a sustainable capital structure and careful financial planning. The company needs to generate enough cash flow to meet its obligations, securing stability and growth post-buyout. If the valuation is set too high, the inbound management become disincentivised to transact as either the company is too restricted to action their intended growth plans, or they will spend too long repaying the debt before they are able to benefit from ownership.
Achieving this balance is critical for a successful MBO, requiring meticulous financial assessment to secure the company’s future without jeopardising its stability.
Do you operate in a niche sector with few trade buyers?
In some sectors, there are fewer trade exit options available. An MBO provides an alternative route if you wish to exit the business. It also provides a structure to reward the existing management team and maintain the independence of the business by passing it on to the next generation whether that be family or colleagues.
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