Management Buy Outs (MBOs) can occur in any industry with any size of business.
They are an opportunity for the business owner to ensure continuity of the business’ operations, which is more often than not welcomed by customers as the business remains with a familiar face and they have confidence the quality of service will continue. Other benefits to the seller includes a faster and easier sale and peace of mind that their business is being passed onto someone they know and trust.
For the buyers, it’s usually the easiest, quickest and least risky way to step up into an ownership role. This has been the experience of Tony Bunting, MD of Amber Plastics. He explained: “Because it was a ‘friendly-buyout’, i.e. I already worked within the company within a senior role, Mitchells was able to access all the accounts and call on the previous owner whenever any information was required throughout the buyout process. Normally, with a business sale, there would be a protracted period of due-diligence but because Mitchells had ready access to the financial records of the business, the process of gaining finance and arranging the sale were far simpler.”
All this makes an MBO sound incredibly easy and straightforward for the buyer and seller, but there are some drawbacks. More often than not additional finance from a bank is almost always required which can introduce extra debt.
In the recent MBO of CCSigns, new owner Paul Tugby said his biggest regret was not having any saving prior to entering into the MBO. He said: “I wish that in the years prior to the buyout, when I was made a shareholder, I’d had the foresight to save for a deposit.”
Paul used The British Bank’s Enterprise Finance Guarantee (EFG) scheme to buy the business. The EFG scheme is a government-backed 75% guarantee to the bank on your behalf for the finance.
“It enabled me to buy my business and for that I am grateful, but the process was incredibly long and stressful and easily the most challenging part of the MBO. I wouldn’t have needed to use the scheme if I had had some capital behind me,” said Paul
A common thread with many MBO teams is that it is a first taste of ownership. Experience at management level does not always translate into the ability to own a business. An MBO team will need to ensure it has the right mix of skills to lead a business, from HR to finance to operations and beyond. One of the team will also need to take an overarching managing director’s role.
There are many success stories when it comes to an MBO. The key is having the right team behind you to advise and bring in the experience and knowledge to make the process as stress-free and smooth as possible, as Dave Eyre owner of Hardcase International explained: “Tim Leeman and Andrew McDaid from Mitchells brought in BRM Solicitors and Optimum Corporate Solutions who all collaborated with each other to support me with the fine details of an MBO, which I am sure saved time and made the process far easier and straightforward. I owe all those involved a debt of thanks. I couldn’t have done it without them.”
If you’re considering an MBO, whatever stage you’re at, get in touch with the expert team at Mitchells.