When the owners of Excelsior Panelling Systems Ltd were planning the way ahead a Management Buy Out was the obvious strategy and when two key employees (Richard & Steve) of Excelsior were asked to buy, a mutual acquaintance introduced us to them to guide them through the MBO process.
Neither Richard nor Steve had been involved in an acquisition before, so our first meeting focussed on
- why they wanted to buy
- what their long-term personal goals were
- What their long-term business goals were
- Current financial status
This step was key as it provided the framework to refer back to through and at the end of the deal to ensure that the deal terms still met their original goals.
Our next step was to undertake a benchmarking exercise of the business, using a Value Builder Score. We suggested this was completed jointly with the buyers and vendors, so that a common view of the business could be established. This is possible in an MBO situation, unlike other acquisitions, as the process should be collaborative.
The benchmarking exercise clearly identified the strengths and weaknesses of the business and allowed us to formulate both a potential deal structure and the financing required to fund it. Despite much negotiation in the ensuing 2 years (yes, MBOs can take that long) this basic deal structure was retained, and the value only varied slightly.
As part of this process the key issues were:
- Key financial metrics. Being in the construction trade it is essential to establish both breakeven and the working capital. These figures were vital to our recommended deal structure in order to ensure both loan and vendor deferred payments could be met;
- Future financial model. With significant bank lending required, typical for an MBO, all the key assumptions needed to withstand the bank’s stress tests.
- Heads of terms – What the deal structure needed to be including amount, payment terms and key conditions
- Deal management, including advice on the contract of sale & lending documentation.
Richard – “Having not done this before we didn’t know how to approach the discussion around value and deal structure. Paul’s technical expertise were crucial, but what I valued most was the honest advice and guidance. It was clear our interests were always first and he demonstrated this several times during the negotiations.”
Steve – “MBO’s are a difficult process and Paul helped us by being an expert and a counsellor, enabling us to negotiate hard but fairly with the vendors whilst maintaining the essential ongoing working relationship.
We are now both excited about the opportunity we can deliver at Excelsior.”
If you would like to learn more about MBOs or how you might prepare your business for one, get in touch. Any conversations we have are treated with the strictest of confidence.