The return of the Management Buyout

13th September 2011 by David Scrivener

Are you are a manager or director of a company with desires to take control of your own business destiny? Alternatively, are you considering selling your business but don’t want to advertise the fact to your competitors? If the answer is yes to either of those questions then it could be worth considering the merits of an MBO.

The last couple of years have certainly been something of a graveyard in terms of local MBO’s. A severe lack of funding options and depressed valuations have seen both potential MBO teams and vendors respectively thwarted at the first hurdle. Based on activity we have seen however, they appear to be firmly back in favour.

During the credit crunch we have seen a seismic shift in the way that MBO’s are funded. In the “good old days” (as I lovingly refer to them!) it was usually a case of coming up with a mix of bank debt and a reasonably meaningful stake by the directors to fund the purchase price. A good proportion of those deals included a degree of “unsecured” bank debt but it was pretty straight forward to achieve. Today we are in a much tougher climate so we have to be far more creative in our thinking.

I am certainly not looking to bash the banks as there are now banks who will lend in these circumstances. Importantly, we know who they are and what their appetite is. It is true that they are fewer in number and that they are considering only the strongest of propositions. The company has to have a strong profit record, have a defensible market position and, most importantly, the management team has to be backable.

Debt in isolation will nowadays rarely be enough to make a transaction happen and we are looking towards private investors, smaller private equity firms and sellers themselves to help fund transactions. From a risk perspective, the knock-on effect of these new structures creates a more flexible and less hamstrung business going forwards.

So, where are we now? MBO’s are certainly back in favour. They are not easy to complete but they can be done. If dealt with correctly they provide a “safe” exit for a seller and a fantastic opportunity for the management team.


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David Scrivener

David Scrivener

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