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Advice
Managing an
MBO
At first glance a management buy out appears to be the simplest proposition
for an owner/manager seeking an exit from the business he or she has spent
many years building. It seems even more attractive for the management team
who recognise the opportunity to take control of a company they have helped
to flourish. But, as Neil Ackroyd reveals, achieving a stress-free MBO isn’t as
simple as it may appear.
I
t’s a fact: an MBO can provide a satisfac- sion rests with the organisation the team con- rate finance adviser who will be aware of – and
tory solution for owner and management, vinces to provide the backing. have relationships with - the right private eq-
but the goal is rarely achieved without a fair Funding opportunities are varied but de- uity houses for specific sectors.
degree of heartache and soul searching. Two pend on the size of the company being The adviser will then write a business plan
factors dominate: agreeing a price and secur- backed. Unless it is making profits of £1.5 mil- and produce a financial model demonstrating
ing the funding to enable the management to lion to £2million, or it is poised to make some profit forecasts and IRR and also help the man-
make the acquisition. spectacular growth, the management team agement team to get the offer of funding.
The first issue revolves round that age old should discount the involvement of a main- Allied to the offer of the cash will be the
controversy-maker – human nature. An owner, stream venture capitalist. amount of equity the venture capitalist is pre-
who instigates the MBO process, thereby cre-
Gaining the backing
pared to hand to the management. It can be
ating a VIMBO, will be looking to maximise the as low as 10% and as high as 80%, depending
price he or she achieves. Full stop. The man- However, if the figures do stack up there are on the variables associated with the deal (so it
agement team will, as their first objective, be literally hundreds of venture capitalists with the doesn’t always follow that the 80% is worth
moving heaven and earth to secure the lowest funds to back eager, enthusiastic management more than the 10%).
deal value; then they will be battling for the teams, but they all tend to have their “pet” in- The advantage to management of bringing
highest equity stake possible – and that deci- dustries so it is advisable to bring in a corpo- in a venture capitalist is that their potential pur-
20 • issue 164 Business Matters
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