A Management Buyout or MBO exercise brings a number of challenges, not all of which are legal or commercial in nature.
An aspiring MBO team will often be taking their first step in terms of owning a business as opposed to running a business. They will need to decide amongst themselves who sits where in terms of job title and reporting hierarchy and, very often, will need to negotiate an equitable financial and contractual conclusion with somebody who is currently their boss. The team must agree upon a business plan that reflects their own vision, not necessarily that of the current owners. This plan must be achievable, must not expose the team to excessive risk and, critically, must stand up to intense scrutiny when they pitch to potential investors.
Just getting to the point whereby the MBO team has a clear vision, a compelling business plan and a target sum of money to find is potentially a large and time consuming task in its own right. This is compounded if the MBO team is making this journey for the first time.
Because the MBO team will inevitably represent key members of the current operation, there is a very real risk that diverting them from their day jobs will, at best, cause friction with the current owners. At worst it may jeopardise the business and service of their company – often to the detriment of valuation in the eyes of potential investors.
After this key planning phase comes further effort in terms of producing and presenting investment memoranda to potential investors and negotiating an appropriate investment versus performance plan with any interested parties.
The BC Transform team have undertaken Management Buyouts personally and on behalf of clients. They have also managed the process from the perspectives of both the outgoing owner and of the aspiring MBO team, so they are well placed to steer negotiations to an equitable end point.
Your BCT partner will provide reassuring expert guidance that reduces risk and frees the MBO team to continue with their day jobs whilst planning this exciting move.
BCT may be engaged to assist with each of the following activities:
- planning for MBO
- negotiating with outgoing owners
- defining an achievable but investment-worthy business plan
- setting up a new management team and reporting structure
- matching the scale and nature of the project to appropriate funding sources
- preparing the investment case and all supporting collateral
- introducing potential investors from the BCT network
- engaging external brokers and agents where appropriate
- presenting and negotiating the investment case to interested parties
- providing lead role and liaison with all external parties, accountants, lawyers etc.
- managing all contractual components
There are numerous potential sources and models of both equity and debt to fund an MBO. Part of the challenge in raising capital is therefore to pitch the investment opportunity to those parties to whom this particular project is most likely to appeal and to seek a funding model that best suits your business in terms of gaining maximum return for minimum risk, cost and loss of control.
BCT is able to introduce investors and to broker relationships with each of the following:
- individual investors
- private equity houses
- venture capital houses
- family offices
- sovereign wealth funds
- hedge funds
- business development companies (BDC)
- mezzanine funds
We do so by directly introducing individuals and institutions with whom we have worked in the past as well as by approaching agents and general investment vectors.