FINANCE


Report reveals profit growth for region


The top performing businesses in the East Midlands have grown profits by an average 29% a year over the past three years, according to initial findings from the annual East Midlands Top 200 Report. The report is produced by Grant


Thornton in partnership with the CBI. It found the region’s top 200 businesses in Nottinghamshire, Leicestershire, Derbyshire and Lincolnshire together provide around 100,000 jobs, an increase of 39% in three years. The Top 200 report is a study of


the growth, performance and percentage rise in the profitability of businesses run from the East Midlands. Grant Thornton Director, Mark


Pashley, said: “The initial findings reveal that overall, East Midlands’ businesses have experienced an average compound growth rate in profits of just over 29% each year since 2014. “Of the 200 businesses on this


year’s report, just over three- quarters (77%) are mid-sized and 23% are large businesses from a broad range of market sectors and industries that illustrate the region’s impressive economic and market diversity.”


The return of the bank-funded MBO


Simon Browning (pictured), Partner in charge of the Nottingham office at chartered accountants UHY Hacker Young, looks at how management buy-outs (MBOs) are making a comeback


During the recession of the late 2000s and early 2010s, management buy-outs were difficult transactions to get away with.


Unless the business was suitable


for private equity investment, the only way to fund MBOs was to use the free cash on the balance sheet as the upfront consideration and get the vendor(s) to effectively play the role of the bank, taking their remaining consideration on a deferred basis. In today’s market, where banks


are showing a willingness to lend again and the asset based lending (ABL) market is awash with new entrants competing to lend money, the prospect of realising an MBO transaction with a high proportion of the consideration being paid on day one is more realistic. Vendors


can again look to banks to fund as much as, say, two- and-a-half times the future cash flows of the business which, in combination with ABL money and the free cash on the balance sheet, can amount to a sizeable chunk of the likely consideration of a deal. Vendors will still probably have to accept some form of deferred consideration, but that’s common. For example, the owners of a


business generating £500,000 of earnings before interest, tax, depreciation and amortisation (EBITDA) with £200,000 of free cash on the balance sheet and an unencumbered sales ledger of £600,000 of eligible debtor balances may look to sell their business to management for £2.2m, being a four times multiple


of EBITDA plus the free cash. With market forces as they stand, management might look to fund the deal as follows: • £1m through a term-debt bank loan


• £200,000 of free cash • £500,000 through a CID facility • £500,000 of deferred consideration Under the above, more than


75% of the total deal consideration is funded on day one and, to a


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56 business network July/August 2017


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