Management Buyouts | Buy-Ins
Strategic Pathways for Seamless Successions and Acquisitions
An MBO/MBI offers alternatives for Owner Managers that may have a succession issue, shareholder dispute or do not want to sell to a trade buyer. Often the number of potential trade buyers may be limited, or the vendors may be nervous about approaching competitors and disclosing sensitive information.
With a smooth transition of ownership via an MBO/MBI, there is a reduced risk of failure going forward. Employees are less likely to be concerned, and existing clients and trading partners are reassured it will be “business as usual”.
What we look for in an MBO/MBI Opportunity
When considering an MBO/MBI, fundamental to this is the credibility of the management team seeking to buy the company and how robust the team is.
Delivery of Service
We deliver our services as either an Operating Partner or a Consulting Partner:
Operating Partner
This is where we partner with the Management team/Company and participate in the MBO/MBI/NewCo. In this scenario we allow the Management team to focus on the business and not be distracted by the transaction process. We then work with the Management team post-acquisition to grow and develop the business.
Consulting Partner
A Management team/Owner may be seeking a partner to help the MBO/MBI/NewCo process. E.g., A Management team that wants to operate the business over a long term and only wants support to complete the transaction /mobilisation.
Funding a Management Buyout
Typical sources of finance include:
- Asset finance – Funding that enables businesses to leverage against the assets in the company, usually property, stocks or debtors.
- Bank and private debt – in addition to asset finance, banks will often consider providing a cash-flow term loan. Also, Private debt funds have become far more active
- Private Equity (PE) – PE funds will focus on backing good management teams.
- Vendor loan notes – The sellers also can help fund the transaction and leave some of their consideration in the company as loan notes to be repaid over time.
The Tax considerations of a management buyout
Depending on the proposed structure and funding, there can be various different tax consequences that both vendor and the purchasing management team. Considerations include:
- Is the acquisition a share or asset purchase?
- Will a NewCo be created for the purposes of the acquisition?
- Is there an earn-out period for the vendors?
- Is Stamp Duty payable?
- If external finance is sourced, who is receiving it – NewCo, the target company or individual purchasers?
- What are the expected exit options for the purchasing management team in the future that ensure they are not liable for income tax?
