Corporate Advisory
If you are currently working in a management role but with no (or limited) shareholding in the business, by taking the next step and investing a relatively small amount of money in an MBO transaction, you could stand to significantly increase your personal wealth in a short period of time. A bank or funder will support you financially for a number of years but once the finance is repaid you will have gained an equity value in your own business for a small investment.
Can I Really Run My Own Business?
You will more than likely be suffering from a number of doubts as to your capabilities in running a business of your own; this is common as an MBO is a big step to take. It is important to be confident in your team’s abilities and to convince funders that you are the right team to provide financial backing to. You may want to ask yourself the following questions:
- Are you and your team sufficiently experienced?
- Are you committed to seeing the transaction through?
- Do you have a clear vision or strategy to take the business forward?
- Will you be able to step up your role in the business in respect of dealing with staff and other stakeholders?
- Are you able to access some personal capital to invest?
In addition to looking at yourself and your team, you should also decide whether the company is a viable business going forward, does it have good prospects and are your plans going to improve its current trading position further? What are the risks facing the business and do you have a strategy to address or mitigate these?
As independent corporate advisors, Investrend specialises in creative MBO solutions. Investrend Corporate Advisory is fast, trusted, and cost effective.
Financing the Transaction
The major issue concerning management teams at this stage is how they are going to afford to acquire an established business themselves. It is important to note however, that the MBO team will only be required to input a relatively small portion of the overall consideration. The main reason you are asked to put your own capital in initially is to show your commitment to the deal. This is a commonly known as “hurt money”.
The remaining consideration often comprises bank debt in one form or another. It is one of the cheapest forms of financing but requires repaying prior to any other financial provider and will have strict terms attached.
Deferred consideration may also be introduced. This is effectively where the existing shareholders lend back to the company a proportion of the consideration for a period.
Venture capital (“VC”) funding is another common option (usually alongside bank funding) for financing the purchase price. A Venture Capitalist will assist companies by injecting cash in return for an equity stake. They have a mid-term plan of typically 3 – 5 years where they aim to increase the value of their stake (as well as yours) and ultimately exit through a number of possible routes. They will usually appoint a member of their team to your board to assist in decision making and strategic direction. They do not however, usually take any direct part in the day to day running of the business.
In order to obtain funding from financial institutions you must have a detailed and well thought through business plan for success.
To measure this, funders will invariably focus on three key criteria:
- A strong and well-balanced management team;
- A commercially viable existing business; and
- A sound and developed strategy for the future.
All of the above areas need to be presented to chosen financiers in the correct manner through both the business plan and effective meetings with funders and Investrend Corporate Advisory can assist you in this process. Investrend Corporate Advisory is fast, trusted, and cost effective.
The Management Team
This is one of the most critical aspects. A strong management team in a weak business is arguably a better bet than a great business being taken over by a poor management team.
You will need to demonstrate that your team is more than capable of running and growing the business, vis-à-vis it has the right spread of skills and necessary experience. A typical MBO team is made up of the following elements, consisting of 3-4 people usually:
- Managing Director
- Finance Director
- Sales Director
- Production/Operations Director
If you can’t cover all these aspects it may be possible to fill the gaps with an external candidate. Investrend Corporate Advisory may be able to help find the right person. The above team is also not prescriptive. The key is to involve all significant members of management and this will vary case by case.
As independent corporate advisors, Investrend specialises in creative MBO solutions. Investrend Corporate Advisory is fast, trusted, and cost effective.
If you are a Management Buy In candidate please contact us to set up a confidential one to one discussion. We look forward to hearing from you