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Beer Mergers Limited is an independent, specialist corporate advisory firm, a "boutique" operation focusing specifically on sales and acquisitions in the small business sector.

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Management Buyouts (“MBO’s”) – Planning and Preparation


In this next blog in our series of looking at MBO’s from the team’s perspective, we cover early preparation and planning. This is crucial to success, so here are a number of key points to consider.

• Your MBO Strategy must be aligned to three key aspects: the future opportunities for the business, the needs of the retiring shareholders, and the requirements of the funders and or investors.

• Consider and be clear about what you as the team want, in terms of the deal itself, price and structure, outgoing shareholder support; handover and legal comfort including key warranties. Think about what elements are non-negotiable and those where you can exercise flexibility if need be.

• Think also about what the outgoing shareholder wants, again in terms of price, deal structure, timing and practicalities of his exit, future involvement and handover. Try to envisage things from his viewpoint, so as to be able to best accommodate those aspects.

• Early agreement on valuation is critical to the viability of an MBO, your offer must be fair and reasonable, and not appear to be trying to pick the business up cheaply, whilst retiring shareholders must accept that MBOs are rarely able to pay premiums to market value, but should pay a fair market value.

• An MBO bid will almost always succeed with full backing of the outgoing shareholders, as well as their funders, who will gain confidence from a united agreement.

• Funding is the second most critical aspect of a successful MBO, and so early agreement on how the MBO will be funded is crucial. You will almost always be seeking some element of external finance, so research carefully and try to make sure you have alternative options.

• There is normally a wide choice available, including Equity, Mezzanine, Invoice discounting, Cashflow lending, Equipment Finance, and others. You as the MBO team will be working with the funders for a long time, so the deal must be “win-win”.

• The minimum documentation you will require for all this is a robust and well developed Business plan, a viable and interactive financial model, and a succinct and punchy Executive Summary. All team members must be fully familiar with and supportive of all aspects of your bid.

Whilst as always the above issues are apparently obvious, they are often undertaken inadequately, leading at best to difficulties in progressing discussions and, at the worst, failing to give the vendor sufficient confidence compared to other options he may have, leading to failure. As always, some degree of external impartial and professional help will be hugely useful.

Posted on by Mike Halls

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