Working with entrepreneurial companies to: help management buy a stake in theır business

Who knows a business better than the management team that runs it? When that team is excited by the long-term potential of the business, buying it from the current shareholders may be the ideal outcome for all parties.

Management buyouts (MBOs) rely on a blend of funding from the management itself, as well as a private equity partner, banks and sometimes the departing shareholders, either through a retained shareholding or if they agree to be paid over time. It is also possible for a new managing director to invest in the business alongside the existing management team in a transaction known as a buy-in MBO (BIMBO).

For an MBO to be possible, the existing owner must of course be willing to sell. It might be that the current owner is looking for an exit from the business – to retire, for example – or that the business is a subsidiary of a larger company, which is now prepared to sell.

The management team also needs to be ready. They will need to be able and willing to make a personal investment in the deal; and also, to adjust to a new role. Owning the business requires a shift of mindset. Ideally, the management team will already have taken increasing responsibility in the business and will have strong relationships with their customer base.

It is also important to be able to work closely with other investors – including a private equity partner with its own ownership stake – which will in turn offer valuable support and advice, as well as capital.

How has Panoramic helped management teams to buy their businesses?

At Panoramic, we have backed a number of ambitious and driven management teams who have bought into their businesses and led them to achieve long term success.

At Precision Technologies International (PTI), for example, we invested £2.2m in a BIMBO in 2016, enabling the management team to partner with entrepreneur and incoming CEO Kevin Parkin to acquire the business. Our capital is now at work supporting PTI, which has more than 50 years of experience manufacturing specialist precision components for customers ranging from Formula One teams to the Oil and Gas sector. Its passionate and committed management sees a real opportunity to expand its product range and break into new markets, while also creating highly-skilled new jobs.

PTI follows in the footsteps of Specialist Tours. In 2013, we invested £1.8m in Specialist Tours, a multi-brand tour operator, providing the company’s management team and incoming CEO Ian Finlay with the capital to acquire and integrate three niche travel businesses. Specialist Tours went from strength-to-strength under its new management, more than doubling its annual revenues to over £9m by the time we exited in 2015.

Most recently, we backed the MBO of plastics manufacturer DW Plastics and are now working alongside four experienced senior employees to develop the company’s ambitious growth plans.

Right time, right place

We think there is potential for many more management teams to consider an MBO in the current business environment. Management teams are becoming increasingly aware of the MBO process and sale advisers have recognised that it is a viable alternative to a trade sale. As older business owners begin to plan their retirement, they are very often keen to ensure a smooth transition for their workforce, which an MBO can offer; and many are prepared to stay on in a consultancy role to support the new owners. Moreover, the relatively strong economy of recent years has left many businesses in a healthy position.

Although attracted by the opportunity, some management teams may feel cautious about making the personal commitment or unsure about what exactly an MBO entails. We can play a valuable role here. Our history of backing MBOs means we have the expertise and experience to support management teams as they take the next step into business ownership. Above all, we look to build partnerships with the businesses we support, with a close working relationship built on mutual trust and respect.

For many companies, an MBO could mark the next stage in an exciting future; with additional capital, fresh ideas and external support from an investor such as Panoramic enabling the business to move confidently to the next level.

We are currently seeing a significant increase in MBOs in the market and the first deals made by our second fund have been MBO/BIMBO transactions. Supporting management buyouts remains an area of focus for Panoramic and, with VCTs now barred from operating in the market, it represents a considerable opportunity for our latest fund.