Key requirements
- quality management is a prerequisite
- strong cash flow
- growth potential
- low (or manageable) operational risk
As with all deals, balancing vendor price expectation with the inherent business value, is key to delivering a transaction. However the potential conflicts faced by management makes this area especially tricky.
Important areas to consider
- management’s position regarding their fiduciary and contractual obligations to the existing company
- team structure and roles going forward
- equity allocation between management team members
- second tier management – ensure they are motivated
Where do the funds come from?
A balanced mix of some or all of the following:
- private equity
- management equity
- mezzanine debt
- senior debt
- asset finance
- deferred consideration/vendor loan
- working capital
Creating the “right” mix of these sources of finance into a funding structure is crucial to a successful MBO. Different types of finance have different characteristics to consider (e.g. equity vs. debt) and different providers of finance offer different characteristics.
Other important factors
- pensions – transfer process, value, TUPE considerations
- tax – planning an exit, planning for future gains, planning for income
- personal funding
- impact on the family
- wills
- keyman insurance
The key role of the financial adviser
- advising management and delivering an attractive deal for them
- negotiating the deal, on behalf of management
- assisting you with raising the finance
- structuring the deal – choosing the right sort of finance, the appropriate amount, from the best provider
- dealing with all parties in the transaction and managing the overall process to ensure things happen
- financial due diligence investigation
• planning for optimum tax position