Management Buy Outs

In pre-recession days Management Buy Outs, commonly known as MBO’s, were a regular occurrence with the main stream Banks only too willing to assist in providing the finance required. Often these packages would include the much needed unsecured “cashflow” lend. Not surprisingly the Banks quickly lost interest in such deals as the financial crisis deepened.

With many Business owners concerned about the possible future impact of Brexit or other, older, owners just having had enough and wanting out there are signs that once again the number of MBO’s is increasing. Whilst the Banks remain cautious and are still not attracted to many but the largest and strongest transactions, there are now numerous other funders willing to assist with other deals sitting further down the food chain.

The key to any MBO, which is now also being used as an exit route for distressed businesses, is to plan ahead and be prepared.

If you are looking to exit the business it is important to establish within your existing management team if there is genuine interests in stepping up to become the owner or whether you will need to look outside the business for a potential buyer. Both parties will need to have realistic ideas surrounding the value of the business.

The incoming management will need to produce an in depth Business Plan to present to potential funders/investors setting out their future plans for the business, its markets and the impact/results of changes that are being made. Most importantly it will show how, the funding required to complete the transaction and continue to trade will be serviced.

Once again it is now possible to fund this type of transaction by utilising assets within the business although it is often a good idea, and beneficial, to negotiate some form of deferred payment to the vendor as this can ensure a level of ongoing assistance from the outgoing owner who has previously been the face of the business to the outside world.

The structure of the financing of the MBO will vary however most MBO’s will use the services of Invoice Discounting to raise a proportion of the consideration by leveraging the debtor book, which is often the largest asset within a Company’s Balance Sheet. Typically 80% of the Sales Ledger can be advanced.

Other assets such as Plant and Machinery can also be utilised to raise funds towards the purchase price through Leasing and Asset Finance.

It is also now, once again, possible to secure a Cashflow Loan which is advanced based on the Company’s ability to service the debt going forward based on both the historic performance and the forecasts shown within the Business Plan.

Crucially all parties will want to ensure that the deal is right and it is essential that in depth financial and legal due diligence is carried out as part of the process.

At Working Capital Partners we are one of those funders who are keen to be involved in MBO transactions and have a suite of products that can assist potential buyers. Whether it is via our traditional Invoice Finance offering or a combination of this with our Leasing product and Cashflow Loan facility please contact us to discuss the level of assistance we can give. We are also able to offer Purchase Order Finance and Export Factoring to leverage additional cash.

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