Stephen Campbell, a partner at Panoramic, recently featured in an Insider Media “Ask the Expert” piece. Here’s what Stephen had to say on Management Buyouts:
Management buy outs (MBOs) were the brainchild of a previous recession. Invented in the early 1980s, they were a solution to selling non-core subsidiaries to management in a depressed market where there were no other buyers.
To reenergise the economy, we need to see more of these MBOs right now. They work for the seller (usually a larger parent company or a retiring owner) as they generate much needed cash quickly and with (relatively) little fuss. They work for the buyers as they get ownership of their company and can bring their own ideas without the dead weight of corporate bureaucracy. Also, importantly for buyers, the prices for company purchases are now reasonable.
We know from our own personal experience with Panoramic, that you work harder and better when “it’s your company”. Consequently, the economy benefits from this injection of energy.
So, why not buy your company? Here are the main reasons why it is a good time to consider an MBO.
1. Renewed access to equity funding
Funds like Panoramic are crying out for good MBO opportunities to back. History shows that MBOs outperform venture capital (technology investments) and Management buy ins so consequently there are a number of funds willing to back the right teams.
2. (Some) access to debt financing
Traditional debt financing is more difficult, however there are other ways to help fund a MBO. Asset based lenders have become very active and it is becoming more common for the seller to accept a deferral of some of the purchase price by effectively providing a loan, often on more flexible terms than a high street bank.
3. No need to remortgage
Funds realise that there is less spare cash out there and the traditional route for management equity (remortgage) is challenging. However, at Panoramic, we can look at funding MBOs through partly paid shares which give management their equity stake in the business but with payment deferred.
If you have ambition, desire, drive and tenacity, you should seriously consider buying your business. If you don’t do it now, you may regret it.
The full article can be found here: http://www.insidermedia.com/insider/yorkshire/76061-business-matters-mbos/index.html