Management Buy-Outs - Dos and Don'ts

Invoice finance facilities can really add impetus to a MBO

Whether it’s management teams being buoyed by a renewed optimism in their future or jaded vendors having a more realistic opinion of the value of their business, Skipton Business Finance has seen an increase in corporate business finance transactions over the first half of 2012.

Management Buy-Outs (MBOs) are a great way for existing management teams to take ownership of the business and move it on to the next stage of its development, at the same time as providing an opportunity for creating their own wealth along the way.

However, there are many potential issues to consider when navigating the choppy waters of a buy-out.

Below are a few of the dos and don’ts for management teams looking to buy their business:

Do

  • Do use good advisors (e.g. solicitors/accountants) who understand corporate finance transactions. They are worth their weight in gold and it pays in the long run.
  • Do produce a clear and concise business plan. This is the blue print for your business which others are going to judge you by.
  • Do be realistic in your projections and manage the expectations of other investors and lenders accordingly. There is no point putting yourself under pressure from day one and having to renegotiate increased facilities within a few months of the transaction. Lenders will not be comfortable and it makes you look unprofessional.
  • Do build in a contingency and have sufficient headroom for unexpected issues. If the deal is too tight then don’t be afraid to ask for increased deferred consideration. The vendor still wants out so they may be willing to negotiate, rather than lose the sale completely.
  • Do be prepared to be available and flexible. Transactions never complete on time, despite everyone’s best effort. Remain positive and focus on the end game. The terms will always change in some way in the run-up to completion, however thorough all parties have been.
  • Do choose a lender who can respond quickly to these changes and you are confident you can work with and will stay the course.
  • Do undertake in-depth due diligence to make sure you know what you are buying. This is especially important if you are buying into a business and do not currently have daily access to the finer details.
  • Do have a walk-away point. There is no point doing a bad deal just because you need to do a deal.
  • Do make sure systems/information are up to date right up to the date of transaction. You need to know what the cashflow mix is going to be, to ensure you have sufficient cash in the business from day one.
  • Do let the other employees know your plans as soon as the transaction has completed (if they don’t know already). There is nothing worse than staff worrying about their own jobs and livelihoods, whilst positive timely news helps to keep everyone engaged and positive.

Don’t

  • Don’t take your eye off the day job. There is still a business to run whilst you're putting a deal together.
  • Don’t be put off by jargon. If you don’t understand something just ask, it’s your future!
  • Don’t start your completion meeting at 2pm on a Friday! Have a thought for the poor advisors who will also need to be at the meeting until the early hours.

Invoice finance for MBOs

If you're currently considering an MBO but are unsure about committing all your financial resources into such a project, could invoice finance help?

During such a volatile economic climate it can be wise to use a finance facility to help complete a corporate transaction, rather than investing all your available capital and leaving no room for manoeuvre.

Here at Skipton Business Finance, we can offer business finance facilities specifically for corporate transactions, so why not visit our page on invoice finance for MBOs or give us a call on 01756 694933 for a chat and a no-obligation quote.