helping entrepreneurs create, build and realise value

MBO/MBI

Completing a Management Buy-out (MBO) or Management Buy-in (MBI)

MBO’s and MBI’s are somewhat complex and can be challenging but they provide entrepreneurial managers with the opportunity for ownership, and the ability to create and realise substantial wealth. They require a pragmatic approach throughout, recognising that there are many variables to manage and not all are always easy to influence.

Our approach to buy-outs and buy-ins is to invest in selective management teams by sharing risk and to help assess the opportunity, carry out an indicative valuation, negotiate outline terms and input into a business plan for funding with minimal or no upfront fees. In return, we look to take a modest equity stake in the business, and a reduced success fee if the transaction is successful. Our role is to create traction in the potential transaction by acting as a catalyst for the management team, and providing advice, guidance and input, wherever it is necessary.

Key StepsDetail of processComments

Step 1

Management team and deal assessment

  • Understanding the aspirations of the seller and their process
  • Vendor initiated or management led
  • Profiling the management team
  • The strategy, business model and performance - previous, now and future under management team  control
  • Value drivers
  • The competitive and customer landscape
  • The “obvious” value inhibitors (“Due diligence/key risks radar”)

We will work as a key part of the management team to assess the deliverability of the deal in all aspects. This is a critical initial look “see to” to ensure all the main components of the deal are workable and there are no significant barriers preventing a deal from happening; team, business or funding .

 

Step 2

Financial modelling and valuation

  • Consider what corporate purchasers would pay
  • Sound out funders and form an initial view of deal structure. To include debt and private equity, if appropriate
  • Build detailed financial model to fully understand future profitability and working captital needs
  • Run scenarios to test financial model and rohbustness of management forecasts and potential for upside

The financial modelling is an essential stepping stone to give confidence to all stakeholders and provide some transparency around what can be achieved.

 

Before meeting the Seller, we must understand what the management team can deliver as a plan, and the sensitivities around these numbers. This will drive funding, and impact how we value the business.

Step 3

Putting together the deal

  • Meet the Seller to discuss our offer and proposals
  • Consider deferred consideration and earnout as a part of the offer structure
  • Demonstrate deliverability of offer and present likely constraints on funding which could impact offer
  • Negotiate terms and agree exclusivity

The relationship between the management team and the Seller can get strained during the deal negotiations. Our role is to represent your views firmly without damaging the relationship. An open and honest dialogue is essential if momentum is to be maintained and agreement reached.

Step 4

Funding the transaction

  • Confirm potential debt and equity funders who will have an interest based on funding quantum, sector and risk
  • Assist in the preparation of a detailed business plan and financial forecast
  • Start to pull together a pack of information/dataroom for due diligence purposes
  • Attend presentations to funders with the management team. Coach team on approach and what to expect
  • Elicit at least 2 offers from each funder type

Realise Capital Partners has strong relationships with the funding community and will match potential funders with the proposed transaction.

We are aware of the terms that funders offer and will negotiate on your behalf to create competitive tension and get the best funding offers available.

 

 

Step 5

Deal delivery

  • Revise deal structure and re-negotiate with Seller, if appropriate
  • Commence legal process, negotiate sale and purchase agreement
  • Manage due diligence enquires from funders and project manage deal towards completion

Funder due diligence is a critical phase in the process, particularly if Venture Capital funding is sought. We will prepare you thoroughly for the due diligence phase to ensure there a no last minute surprises in the deal process.

Step 6

Implementing the plan

  • Prepare a 90 day plan to focus on the critical actions required post completion
  • To cover financial reporting and covenant testing.

Completing a deal is an emotional and time consuming process and it is all too easy to lose sight of the basic things that need to be done post deal. Making a good start and staying ahead of funder expectations builds confidence all round

"Raj devised, led and delivered a complex management buy out transition which achieved a fantastic outcome for all concerned. His huge energy, ability to anticipate and tackle the issues, coupled with a strong commercial instinct made all the difference. I would recommend Raj in an instant." Group CEO, Global Food Group. Transaction size £35m