Game Plans for Growth – which route is best for selling your business? MBOs

Business sale to Employees

Game Plans for Growth – which route is best for selling your business? MBOs

This is the second in a mini series of newsletters on business succession, the first was on Business sale via a trade sale, whereas this one focusses on buyouts by managers.  Business owners can often put off thinking about business succession, however we are all mortal and there are many horror stories of businesses left to widows (or widowers) who may not be best equipped to lead the business.

The Idea

Selling your business to its Managers, via a Management Buyout, can have many advantages, as they already know the business and sector, they will likely know the key strengths and weaknesses, and may well have a fresh vision about the business strategy.  However, many business owners reject this option and so deny themselves a credible Exit plan.  This newsletter provides tips to helpunblock your Management Buyout!

The Game Plan

Here are our top tips on Manager Buyouts:
1.    Needs careful planning before any discussion with the managers, otherwise you could suffer from the ‘Genie out of the bottle‘ issues.
2.    Managers don’t need a pile of cash.  While Managers need to be able demonstrate commitment, then don’t necessarily need much money of their own.
3.    Funding is often available and is best sought via a balance sheet review of the business – (see our earlier blog Where to hunt for funding.)
4.    Vendor funding is an option to consider, when the former owner lends some proceeds back to the Managers, as this can unlock the possibility of a deal happening.
5.    Private equity or Venture capital funds can be sourced. See ourPE fundraising service.
6.    Assess your Team strength, particularly with respect to their Leadership ability. Need to make an honest appraisal of their Leadership capabilities. Do they have a new strategic vision for your business?
7.    Consider what roles you fulfil – be honest and assess what roles will need to be replaced (Gap analysis). This is difficult to do objectively, so best done in conjunction with third party independent review.
8.    Plan for receipt of consideration over a period of time. As former owner you will need to be patient to receive full value.
9.    Plan your deal structure carefully to be tax effectiveEntrepreneurs relief can be available so that only 10% Capital Gains tax is payable. However, watch that the tax tail does not wag the commercial dog!
10.    Select your Lawyer with care, balancing the need to protect former owners from non-payment, with a pragmatic approach which will work for all sides.

The End Result

We love helping with Management Buyouts as it combines our deal experience with fundraising, enabling us to help unlock value as well as securing business succession.  We find that informed negotiation is key, and being properly prepared essential for a successful Management Buyout.  Management Buyouts can be small, such as the £300k turnover service business, sold to a Manager instead of shutting its doors, or the £1.5m turnover manufacturing business purchased by three key Managers (see our MBO case study).
Please email me or call if you would like an informal chat about planning your successful business exit.  Alternatively you could see our client testimonials or read our case studies.
Kind Regards
James Shand