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Top tips for successful MBOs
This quick guide gives you some top tips for making your management buy-out (MBO) a success. They are based on our many years' experience of great transactions, so if you want to know more, please contact Skye Corporate Finance.
Tip tip 1: Do your feasibility
MBOs are a roller coaster ride. Don’t embark on the trip without a clear understanding of where you are likely to end up. Look at the deal, the team and the funding – are the ingredients there to create a success?
Top tip 2: Get the management team right
The true fundamental. It’s a MANAGEMENT buy-out. Get the balance right, get the team that fits the business not the team the text books tell you.
Top tip 3: Protect the equity
This is where the true value lies. Those that get it should really deserve it, those who are critical to the business and its future success. Equity incentives are good – but don’t spread it too thinly.
Top tip 4: Plan well
A good business plan will underpin the MBO. Not just in terms of fund raising but also as a tool to direct and measure the business in the future. Take time to get it right but keep it short, sharp and to the point. Don’t over-elaborate.
Top tip 5: Chose funders carefully
Not just on the basis of terms but also fit and personality. If the relationships not there, neither will be the deal. You’ll have to sell to them but also make them sell to you. You’ve got what they want – opportunity!
Top tips for working with private equity investors
This quick guide gives you some top tips for working with private equity firms.
They are based on our many years' experience of great transactions, so if you want to know more, please contact Skye Corporate Finance.
Top tip 1: Appreciate that it’s expensive money
You might as well accept this from the start. It’s true risk capital and the terms reflect this. Take it on when you really need it, when it's going to make a real difference to your deal and your business and always look at the alternatives.
Top tip 2: Prepare for the challenge
Private Equity investors will test you. You’ll know a lot about your business but make sure you really understand the market, it's trends and what makes your business better than the rest.
Top tip 3: Grow to exit
You must be able to grow your business otherwise Private Equity is not the place for you. Growth enhances value for you and the investors and this is crystallised when the business is sold. Having a sense of the eventual exit, even on day one, is critical.
Top tip 4: Negotiate hard
Private Equity players are good negotiators but they will compromise. Don’t be afraid to push for what you think is right and for what is best for the business. Chances are you will be right and your potential investors will come to realise this. Remember also that you have something they want – an investment opportunity, their very lifeblood and they can’t exist without it.
Top tip 5: Look for added value
A Private Equity house should bring more than just money. Specific expertise, improved credibility, good contacts and quality non –executives should all be in evidence. Your day to day business should feel the benefit of their involvement. And remember it’s like a marriage – if you don’t get on it won’t work so chose someone compatible.
Top tips for managing the sale of a business
This quick guide gives you some top tips making the sale of your business a success.
They are based on our many years' experience of great transactions, so if you want to know more, please contact Skye Corporate Finance.
Top Tip 1: Watch the clock
Too may business owners leave it too late. Time goes by at an extraordinary rate when you are running a business. Before you know it you are ten years further on, still entrenched in the company with no obvious route to an exit.
Top Tip 2: Prepare well
If you give yourself time you’ll get the business in good shape. Not just in terms of sorting out problem areas but presenting the business as well as you possibly can with positive trends, strong management (showing that you can step away from the business) and secure customers. Also check out your tax position and avoid any nasty shocks.
Top Tip 3: Private investigations.
Don’t treat your business as a commodity. Don’t just put a for sale sign up. Delve into the market. Have a look to see who’s buying, who’s selling and at what prices. Get a sense of whether you’ll get a good deal before anyone out there knows you are for sale. Base your next step on some certainty.
Top Tip 4: Negotiate sensibly.
It’s unlikely that anyone will give you want you want on a plate. So negotiate hard but be prepared to compromise at the right time. Keep an eye on the bigger picture, a sale could provide security for you and for your family and might be in the best interests of the business and its employees – these are worth a lot more than minor tweaks to the deal.
Top Tip 5: Consider alternatives.
A trade sale is not the be all and end all. Selling to management in an MBO deal, a share buy back, the sale of a minority stake to a venture capitalist or simply harvesting cash on an annual basis are all ways of extracting value and securing your personal position.
Guide to management buy-outs
Do you want to control your own destiny? Do you want to own the business you've been running for someone else? Do you want to make a life changing amount of money?
If the answers to any of these questions is yes, then you should be considering a Management Buy-Out and starting out on the MBO Journey.
This quick guide takes you through the process and the key stages of an MBO. If you want to know more please contact Skye Corporate Finanace.
Overview of the MBO process
Feasibility
MBOs are not to be taken lightly. There’s risk involved, heavy commitment and hard work but the rewards can make it all worthwhile. But before getting in too deep, take time to assess the feasibility.
Is there a deal? Have you approached the owner of the business and is he/she receptive to the MBO? Has the owner indicated that the business may be put up for sale or has he already done so? Is the owner coming up to or contemplating retirement? Is the business you work in viewed to be “non-core” to the owner. If the answer is yes to any of these then you are on fertile ground.
Management Team – This is a MANAGEMENT buy-out. Without a management team there is no deal. There are no hard and fast rules about the size and structure of the team. It could be one person it could be five. A management team that fits the bill for the business in question is what is required.
Business Case. If there is a prospect of a deal and the management team is in place then an overview business case can be created quite quickly to assess whether a financial deal can be structured which is likely to satisfy the aspirations of the current business owner.
Planning and Funding
The thing about MBOs is that the management team are never going to have enough money to buy the business. Finance will have to be raised and this is a process in itself.
Business Plan. This will be the cornerstone of your funding proposal. The plan will describe the business, profile the team and present the opportunity. Detailed financial analysis is a critical part of this. But don’t get carried away. No-one wants to wade through a fifty page monster. Let’s keep it short, sharp and to the point.
Presentation. At some stage you will have to stand in front of your prospective funder and present your opportunity. This was once described as “the sales pitch of your life”. But don’t worry, you know more about your business, your market and your opportunity than a funder ever will. With a bit of practice and some thought you’ll do yourself justice.
Funder Selection. Expect to get more than one funding offer and from different sources. Selecting the right partner is more than just about who is the cheapest. Who can you work with and whose offer dovetails in best with other types of funding you might need?
Formal Process
You may have been working on your MBO for two or three months by now. You’ve struck the deal with the business owner and you’ve got your funding package in place. Its time to grit your teeth for the formal process and the drive to completion.
Due Diligence - Due Diligence is a review of the company’s finances and your business plan, undertaken by an independent firm of accountants supported by other experts. Your funders will want this to make sure that everything is in order but it's for your benefit as well as there will be aspects of the company that you will have had no involvment in and if there are issues hidden away you’ll want to find out.
Legals - Everything that you have agreed with the business owner, your funders and between the team has to be formalised in legal documentation. Expect a lot of paperwork. It’s not thrilling but its vitally important. Time to burn the midnight oil and work with a lawyer you feel like you can trust.
Completion - The culmination of all that effort. A completion meeting will take place at the Lawyers’ office. If you're lucky it’ll still be daylight when you finally sign up. Time for a glass of champagne and the realisation that you own the business!!
Hard Work
You have come through the MBO process successfully. Well done.
Post deal, you will have leant more about your business, finance and the legal process than you could ever have imagined. And, having stretched yourself, you’ll have a good idea about your own and the teams’ capability. You’ll be in good shape to take the business on to the next stage as an OWNER manager.