Tag Archives: Corporate Finance

INTERVIEW – Tim Mills, Corporate Finance Partner, Answers Your Questions On MBOs

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1. How is the transformation from senior manager to a seat on board best achieved in operational and preparation terms?

If a position on the board is on the table then it is essential that the individual does not feel overwhelmed by the opportunity. They should be invited to observe board meetings and given an overview of the current directors, before being made a director.

Any gap left within the management team by a person moving to the board should be anticipated and the necessary plans put in place ensure the promotion does not have a negative impact on day to day operations.

2. Raising the subject of a MBO can be difficult. Where does the conversation start? How is it best approached?

To enable the topic of a MBO to be raised by management there needs to be a willingness between all members of the MBO team and the business owners. If management are instigating an MBO then they should confirm with the owners their interest and agree who will form the MBO team.

Discussions can begin on an informal basis but should become more formal as matters progress and external advisers are engaged. It is also important to agree who will be responsible for settling the potential fees involved in a MBO. This is particularly important if the deal fails to reach completion.

Business owners that are well advised should have an outline of an exit plan. This may well include the option of a MBO which may lead them to commence discussions with management. In this situation the early decision for management is whether they actually want to become business owners.

3. How do you go about valuing a business for an MBO? What are the main issues?

The approach to valuing a business for a MBO is the same as when valuing a business for a trade sale. It will usually be on a maintainable earnings basis with a relevant multiple applied. However, the value that vendors may agree for a deal with a MBO team will often below what they would require from a trade sale. This is due to a number of factors that only apply to a MBO. These include the vendors passing the business to a team that have helped develop it; the vendors would expect to be agreeing to substantially reduced warranties and indemnities within the legal documentation and a MBO could provide more security for retaining employees than a trade sale.

These factors carry a value for the vendors which they must try to quantify as the overall consideration they will receive from a MBO will invariably be below a sale to an external party.

The key issue for a MBO team is to agree a value that is acceptable by the vendors but does not require the MBO team to agree to terms they feel are unfair.

4. Sourcing funds isn’t so much of a problem in 2016, but choosing an effective funding structure can be challenging. What are the options for structuring a buyout?

The funding structure will be dependent upon a number of variables. These include how much the MBO team have available, how much the bank or other funders are willing to lend to the MBO team, what security is available and how much the vendors are willing to leave in the business as deferred consideration. The choice of funding will also be based upon the size of transaction which may require private equity funding in addition to debt.

The key to structuring the deal is to ensure the funding required fits within the current business, together with the future plans the MBO team may have. The more a deal can be de-risked from an external funding perspective the more attractive it becomes to them. Therefore, including a reasonable level of deferred consideration into a structure is advisable, particularly where the vendors may remain with the business for a period of time after completion.

Structuring a deal that fulfils the requirements of the vendors, the MBO team and potential funders is rarely straight forward and advice should be obtained at an early stage by the MBO team.

5. What are some of the pitfalls along the way to completing a buyout?

Completing a MBO is often quite stressful and can change the personal relationships that the MBO team had with the vendors. This is often the case when the vendors remain in the business for a period after completion and effectively become employees with former management now becoming their bosses.

The transaction can be time consuming and can lead to those involved losing focus on the current business operations. This in turn can impact on trading performance and give rise to concerns for funders even before the MBO takes place.

Ensuring all of the MBO team agree on decisions as matters progress can cause issues and may result in some of team deciding to no longer be part of the MBO before completion.

If any of the above topics resonate, please feel free to contact a member of the PM+M Corporate Finance team on 01254 679131. Whether you are considering a MBO or thinking about selling your business, the team will be more than happy to sit down with you for an initial fact-finding discussion and explain how they can help you make the process as simple and stress-free as possible.

 

It’s manufacturing, but not as we know it!

3D Widget Printing

I have written blogs and articles before on the advance of 3D printing and what it could mean for manufacturing in all kinds of sectors. The new Airbus A350 XWB (unveiled last year) has about 1,000 3D printed components. 3D printing is clearly no longer a novelty manufacturing process and it has the potential to transform the aerospace industry supply chain and cost structure, producing lighter parts faster with less waste. Currently, the components are mostly widgets and brackets, small routine parts rather than large structures. The size of the part is limited by the size of the printer so it is difficult to imagine a machine large enough to make an airframe, but wider applications seem to be a distinct short term possibility.

But clock the latest advances. Scientists in the US have been using 3D printing to create living body parts with sections of bone, muscle and cartilage all functioning normally when implanted into animals. Move over Dr Frankenstein!!

Seriously though, this technology has the potential to disrupt many industries and there is significant funding being made available in the sector. Rosebud Finance and the North West Fund have recently invested additional money in an East Lancashire business to finance its rapid growth. It seems the possibilities are only limited by the boundaries of imagination.

If you are thinking of investing in new technologies and need pointing in the direction of funding, then give one of the Corporate Finance team a call on 01254 679131 and ask to speak to Jim Akrill or Tim Mills or contact me directly at jim.akrill@pmm.co.uk.

Jim Akrill – Corporate Finance Partner

Corporate Finance Update

shutterstock_242204359The PM+M Corporate Finance team continues to grow its presence in the North West market and also on a wider geographic basis. Over recent months we have been involved in a variety of disposal and acquisition transactions.

On the sell side we have disposal mandates in construction, manufacturing, wholesale and software. There are an increasing number of buyers in the marketplace and valuations are on the rise for good quality businesses.

On the buy side we are acting for a number of businesses in the manufacturing and engineering sectors. We have completed a Management Buy-In and a trade acquisition and have a number of advisory clients located in the North West, the Midlands and beyond.

We are also seeing an increase in business owners seeking strategic advice as they start planning for growth or future exits. The value of good advice and support in this field cannot be underestimated.

If you are thinking of buying or selling your business, or would just like to talk about your future plans, please contact Jim Akrill or Tim Mills for a free consultation.

PM+M Corporate Finance complete Management Buy-In at WS Rothband

shutterstock_242204359WS Rothband & Co. Limited, established in 1860 and supplier to the NHS for almost 70 years, has been acquired in a management buy-in led by Paul Dixon. Rothband has been developing protective equipment for radiology departments since the technology was introduced to the NHS.

The deal was funded by Seneca Partners and Rosebud Business Finance, and Tim Murphy, a director of Seneca Partners, will join the board at Rothband. Both Seneca and Paul Dixon are delighted with the acquisition, as they believe the market has huge potential for growth.

Paul Dixon commented: “One of the key factors in completing this acquisition and being able to successfully implement our growth plan, was always going to be finding the right team. Having worked with Jim previously I knew that he and PM+M were the right company to lead this venture and put together the right funding package.”

FW Capital and Ultimate Invoice Finance provided working capital to fund post-acquisition growth. Legal advice was provided to Seneca by Napthens and Taylors were legal advisers to Paul Dixon.

Jim Akrill, Corporate Finance Partner at PM+M, commented: “This was a challenging and complex deal to do but we were able to put together a funding package with a balanced mix of debt and equity which will allow the business to drive its exciting growth plans.”

For more information or advice on acquisitions, please contact Jim Akrill on 01254 679131 or by email at jim.akrill@pmm.co.uk.

Angel Investment Scheme Arrives in the North West

investmentThere is increasing confidence being felt by many business owners and advisers in the North West and it is therefore perhaps of little surprise that last week witnessed the launch of a new North West focussed angel investment scheme. The Co Angel Investment service is the first of its type in the North of England and is a joint initiative by Business Finance Solutions and the British Business Bank.

The plan is for syndicates of business angels to invest alongside the British Business Bank. This will provide an alternative funding source for businesses looking to raise finance, particularly those requiring growth funding which may not be readily available. An increase in the sources of finance that are available to businesses generates more options and leads to more opportunities being created for connected parties.

Read more on this story here.

If you would like to find out more information on possible finance options, please email Tim Mills at tim.mills@pmm.co.uk or call 01254 679131.