BM159_36_37 copy:Layout 1 1/9/08 00:54 Page 2
Advice
chaser costs and legal fees will be paid for Business Angels are not as celestial as their This scheme of things can be particularly
them, leaving them risk free from that point of name suggests. They can be difficult to work successful when the exit is “in the family”. It
view. with. Remember that these are rich and suc- takes away the risk for the vendor as the exit
Additionally the corporate finance adviser cessful individuals and they almost certainly has been planned properly and the team is
will work wholly contingent on the transaction didn’t get that way by being foolishly gener- ready to do the deal.
or for a small retainer. The vendor, however, is ous. A Business Angel will almost certainly
Contributions all round
usually required to pay a retainer. want many strong legal clauses and to have a
Venture capital
say in how the business should be run, even No matter where the backing comes from,
down to adopting “swamping rights” under the management team will be expected to
Management teams in companies making which they take over the management of the make a significant – but not horrendous – cash
profits from £800,000 to £1.5million might well business should things go wrong. contribution towards the purchase; anything
be able to turn to venture capital trusts for from 50% to 100% of annual salary. This more
funding. These organisations have tax breaks
‘Management teams
often than not involves the remortgaging of the
that prevent them from investing more than
who get things right can
family home (although some venture capital-
£1million at a time although they can get round ists have been known to increase salary levels
it in certain cases by introducing multiple funds
expect their payout to
to cover these additional outgoings).
or syndicating with other houses. This can ef-
be 10 to 20 times their
It must be remembered that the first objec-
fectively put a £5million to £6million ceiling on tive of a venture capitalist, once the deal has
their equity involvement.
initial investment,’
been done, is the preparation for an exit in
Management teams hoping to buy out three to five years time, either through a trade
smaller businesses, making less than In many cases, Business Angels realise that sale or a secondary buy out.
£800,000 profit have different funding options the companies who approach them have all Management teams who get things right
including bank debt, business angels or ven- but run out of funding options. can expect their payout to be 10 to 20 times
dor finance. It is not unusual for vendors who have their initial investment, and more if things have
Even when bank debt is available (which amassed a nest egg after years of successful gone particularly well –not a bad return for a
can be difficult in the current market) there is trading to lend the management team the few short years of hard work.
often an “equity gap” which is the difference funds necessary to purchase the company.
between the amount of debt available and the They retain an equity stake in the business, so Neil Ackroyd may be contacted at:
price to be paid. This “equity gap” is likely to having a “second bite of the cherry”, while Precision Corporate Finance:
be funded by either a Business Angel or a loan being repaid over a period of years. Tel: 0845 201 0320 or
note or deferred consideration neil.ackroyd@Precision-corpfin.com
from the vendor.
Business Matters issue 164 •21
Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44  |  Page 45  |  Page 46  |  Page 47  |  Page 48  |  Page 49  |  Page 50  |  Page 51  |  Page 52  |  Page 53  |  Page 54  |  Page 55  |  Page 56  |  Page 57  |  Page 58  |  Page 59  |  Page 60  |  Page 61  |  Page 62  |  Page 63  |  Page 64  |  Page 65  |  Page 66  |  Page 67  |  Page 68