We Turn Managers into Owners

We will help you fund finance and structure a management buyout.

We manage some venture capital funds, we co-invest with other venture capital firms, and we raise capital and arrange for management teams in companies with annual sales of between £1 million and £100 million.

Whether we invest, co-invest or arrange a management buyout for you depends on the circumstances of each transaction. But call for a brief chat to see if we think we can help you.

We are a small team so you always work with the same people.

What is your business worth to a venture capital firm?

Private equity firms use detailed spreadsheet models in valuing and structuring buyouts. Our model has been used to fund and structure many buyouts and has been purchased by many institutions, companies and banks, including the Bank of England.

Industrial sectors suitable for management buyouts

We are interested in most sectors. However, because of EU rules, we are excluded from transactions involving oil & gas, and offshore fishing. Apart from these exceptions, if it is legal and profitable, we will look at it.

How does a small team buy a large company in a management buyout?

The way that a management team can fund and finance an MBO is now well established. The existing business is known as the "Target" and the MBO company is referred to as "Newco".  Newco is funded by money from the management team, venture capitalists, and banks. Because the venture capital firms invest in shares as well as loans or preference shares they get a lower percentage of the economic ownership of the company than the MBO team for each pound invested. By varying the investment proportions management can have a significant financial stake in a large company for relatively little money - provided the company increases in value after the deal is done.

What you should do to start the MBO process

The next step is to contact us by phone or email. You can approach us with just an idea for a transaction, an executive summary, or a full business plan.

If we think you have a potentially backable proposition we will arrange to meet you. This can be at your premises or elsewhere; and we are happy to meet outside normal office hours if that is more convenient or you are worried about confidentiality issues.

A venture capital firm with experience of all aspects of management buyouts

We prefer to invest alongside management and on similar terms to them. This helps align our interests with yours. We won't encourage management teams to produce profit forecasts that we don't believe in or to pay more for a business than we think sensible. This approach comes from our experienced background in banking, consultancy as well as being venture capitalists for over 20 years. We also did our own management buyout - so we have seen all sides of transactions.

Fees and costs

You can start on the management buyout process without worrying about incurring costs on a transaction that doesn't happen. In fact, you can get quite a long way through the process before having any personal exposure to fees and other costs. Typically, a deal will require about fifty days and our fee is usually paid by the acquiring company (Newco) which is funded primarily by the venture capital firm, not by the management team personally. Most deal fees, including ours, are contingent upon a deal actually happening.

The one area where management do have a personal exposure to costs is for professional advice on the terms of their employment contract with Newco but these will only occur once there is near certainty of a deal completing.

Is a buyout of your company possible?

A management buyout requires a seller, be they willing or unwilling. A willing seller is typically the planned retirement sale by the owner of a private business; or part of a corporate group being sold for strategic reasons. Much of the time expended in dealing with willing sellers involves finding financiers who are interested in the company at a price that nears the vendor's expectations.

An unwilling seller is a typically company in distress or administration because of losses or excessive borrowings. Even an unwilling seller will only sell if the price is acceptable to them, and distress deals often fail because the purchaser finds the problems in a distressed company are often far worse than initially disclosed. Presenting the right amount of information in the right manner is important.

At Equity Ventures we can help you establish at an early stage if it is feasible to do a buyout of your company.

We have experience of making the first approaches and assessment of buyout and acquisition possibilities and we can discuss and agree these with you. But you won't know what can be done unless you start the process - with a phone call to us.  

Venture capital and private equity news and views:

Some other points on management buyouts

Below are some further points and re-iteration of some of the key issues about doing a management buyout

Advantages of a buyout for vendors

For a company undergoing a change in ownership, an MBO offers advantages to all concerned. Most obviously, it allows for a smooth transition of ownership. Since the new owners know the company, there is reduced risk of failure going forward, other employees are less likely to be concerned and existing clients and trading partners are reassured it will be “business as usual”. Furthermore, the internal changes and transfer of responsibilities between the vendors and management remain confidential, while any due diligence required by funders is often handled quickly.

The strength of the management is a critical factor in contemplating the potential future success of the company. Therefore, any funders pay close attention to the skills, experience, knowledge and credibility of the management team as well as their vision for taking the company forward. And while the management team can reap the rewards of ownership, they have to make the transition from being employees to owners, which requires a change in mindset from managerial to entrepreneurial, and all parties need to ensure this is a transition that is achievable.

Funding a management buyout

For an MBO to be successful, vendors must be willing to sell the company at a realistic price and with a fundable deal structure. It is rare that a management team will have sufficient funds on their own to buy the company and external finance will be needed, so MBOs are usually funded via a number of sources:

  • Management's own money – while they are usually not able to fund the whole transaction, the management team is usually required to introduce personal funds, to provide confidence to a funder and to demonstrate commitment – a rule of thumb is one year’s salary but funders may be flexible on this depending on the perceived risk of the transaction;
  • Asset finance –  borrowing against the assets in the company, usually, property, stocks or debtors;
  • Bank debt –  banks will often also provide a term loan, usually repayable over 3-5 years to support an MBO;
  • Venture Capital and Private Equity – this in a source of finance except at the smaller end of the market, with many funds looking to back management teams to scale their company;
  • Vendor loan notes – if all the above is not enough, often the vendor themselves help fund the MBO and leave some of their consideration in the company as loan notes to be repaid over time.

So what makes a successful MBO?

  • A company with a good track record of profitability;
  • Good future prospects for the company without high risk factors;
  • A strong committed management team with a mixture of skills;
  • A vendor who is willing to sell to the management team and who will accept a realistic price;
  • A deal structure that can be funded, and supported by the future cashflows of the company.

Are there any risks in a management buyout?

There are a number of risk factors that can make an MBO more difficult.

  • An over dependence on the acumen and business contacts of the owner who is exiting;
  • The retirement of other senior management;
  • High customer or supplier dependence issues;
  • Market threats and changes such as new competition or new technology.

Such risk factors do not necessarily mean that an MBO is not possible, but they need to be considered from the outset as funders will only provide support if they are satisfied that the company will be viable for the foreseeable future.

What is The MBO Process?

The key steps of an MBO process include:

  • Buyer and seller agreeing on a sale price, possibly including independent valuation;
  • Management team agree with the venture capital firm the amount they are going to invest. The base amount is usually one times annual salary for the MD with the others proportional to their role and personal circumstances;
  • Detailed financial analysis and modelling conducted, including building a forecast to show the serviceability of debt and returns to potential investors - such as the much used model we have produced at Equity Ventures;
  • Approach to funders, a small buyout may involve just one funder while in the case of larger transactions, several firms may handle the financing.

The MBO process can take 6 months or more from the time of outline agreement so the vendors and management team must be prepared for that time frame. This can be stressful as the company must be run as normal and kept on track while the transaction is on-going.

MBOs are a good option to consider

On balance, an MBO may offer a vendor an attractive alternative to sale to competitors. In considering an MBO a number of considerations need to be made such as the desire and credibility of the management team buying the company, the availability of funding and whether all parties involved can agree upon the funding mix. The MBO route can provide a vendor with assurance of the future continuity and success of their company and the management team with significant opportunity. there are often more things than pure price

If you would like further information on buyouts call on 0207 859 4106.