Special Feature
Stephen Campbell, a partner at Panoramic Growth Equity, the leading equity investor in fast growing, entrepreneurial companies, has devised the top ten questions management teams should ask when undertaking a management buy-out (MBO):
The bulk of the finance required to purchase the business will normally be provided by financial institutions, primarily from banks and venture capital/private equity houses. Debt and working capital facilities (loans and overdrafts/invoice discounting) are typically provided by a bank and are the cheapest form of finance.
Stephen comments: “It can sometimes seem a daunting task to consider an MBO and at times, management teams will more than likely be suffering from a number of doubts as to their capabilities in running a business of their own. To help you through this process we have devised the top ten list of questions you should ask before proceeding with an MBO.”
Could you run this business better than the current owners?
There are usually two types of buyouts. Firstly, where a founder has built up the business and wants to sell and secondly, where it is a part of a larger group. In the first scenario, the founder often starts to lose
18
www.finance-monthly.com
interest after decades of hard work and can be a hindrance, not a help. We met with one MBO team recently who said that they spent 40% of their time managing the personal eccentricities of the owner rather than running the business. In the second scenario, your company may be a small part of a big group where a distant HQ has no idea about your business but tells you what to do.
Would you back this belief with your own cash?
Any investor is going to want to see proof that you believe so strongly in your company that you will back yourself with your own cash. The amount of cash is relative to your situation. A £25k cash input from a young, hungry MBO team may be more meaningful than a £500k cash input from a wealthy team.
Historically, most MBO teams provided their cash input from re-mortgaging their house. This is a more difficult option now in the current environment. For these reasons, Panoramic has been working on allowing
MBO teams to buy part paid shares so they are getting a meaningful stake in the business and committing to putting their money in, but it can be done over time rather than all on day one.
Can you explain clearly to an outside investor how you would
grow sales, improve efficiency and/or cut costs? Step one in any MBO is for the management team to draw up a business plan. This doesn’t have to be a 100 page document. Most investors will admit they have made a decision on whether they like a business in the first five pages of a business plan so make it punchy and clear.
Are you ‘backable’? Are there any big gaps in the team, do you
have a good finance director and sales director? Is the team together in this, or do any members want to keep the ‘comfort blanket’ of what they know? If a member of your proposed MBO team
BUY-OUT
MANAGEMENT TEAMS MANAGEMENT
SHOULD ASK WHEN UNDERTAKING A
QUESTIONS
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68 |
Page 69 |
Page 70 |
Page 71 |
Page 72 |
Page 73 |
Page 74 |
Page 75 |
Page 76 |
Page 77 |
Page 78 |
Page 79 |
Page 80 |
Page 81 |
Page 82 |
Page 83 |
Page 84 |
Page 85 |
Page 86 |
Page 87 |
Page 88 |
Page 89 |
Page 90 |
Page 91 |
Page 92 |
Page 93 |
Page 94 |
Page 95 |
Page 96 |
Page 97 |
Page 98 |
Page 99 |
Page 100 |
Page 101 |
Page 102 |
Page 103 |
Page 104 |
Page 105 |
Page 106 |
Page 107 |
Page 108 |
Page 109 |
Page 110 |
Page 111 |
Page 112 |
Page 113 |
Page 114 |
Page 115 |
Page 116 |
Page 117 |
Page 118 |
Page 119 |
Page 120 |
Page 121 |
Page 122 |
Page 123 |
Page 124 |
Page 125 |
Page 126