Grasping the 'non-core' opportunity

David Scrivener, corporate finance partner at Ensors Chartered Accountants, explains the Management Buy-Out (MBO) process

David Scrivener, corporate finance partner at Ensors Chartered Accountants, explains the Management Buy-Out (MBO) process

WE have all heard the saying before but, it really is not very nice to be told you are “non core”.

It's like being told you are not wanted any more and, what's worse, is likely to be followed by a lengthy sale process which can be damaging to the business you have helped build. Endless meetings with potential suitors, followed by the day it is all complete and you have to work with new owners and the inevitable uncertainty.

Alternatively, you could put together your own bid for the business and create a management buy-out (MBO) - critically a bid that has the added leverage of the key managers behind it. The power of this shouldn't be underestimated. We have seen a number of cases where higher bids have lost out because they haven't had the support of the existing team.

Most MBOs are funded using a combination of debt and money from external funders and this is still available for good businesses, even in these turbulent times. The management team may be expected to provide some funds or other commitment but the level will depend on the deal itself and is usually based on affordability. Banks and other funders are keen to support well established management teams of strong, profitable businesses. From experience, we know the right people to contact to make it happen.

We believe there will be an increase in the amount of non core disposals in the coming months. Large corporates and plcs will remain under pressure to raise cash and selling off subsidiaries or divisions could be an ideal source.

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Approaching the directors with a proposal based on a sensible business plan before the trade sale process is undertaken and the business is sold to a third party takes courage, but the benefits in the future are significant. There are many advantages to running your own business away from the control often imposed by a parent company and businesses where MBOs have taken place often go on to achieve record levels of growth and profitability under the new owners.

If you are a manager or director who has aspirations of owning the business you work in it is essential that you obtain the best possible advice to put a business plan together and structure any deal. Ensors have many years experience working with successful MBO teams so please contact us for a confidential discussion.

This information is given by way of general guidance only, and no action should be taken solely on the basis of the information contained herein. No liability is accepted by the firm for any actions taken without seeking appropriate professional advice.