News - Midlands
Bringing Up Baby
What many people don't realise is the sheer emotional roller coaster they'll be riding. It's as demanding, frustrating, time consuming and rewarding as looking after a new baby."
So says Roger Buckley, corporate finance partner at BDO Stoy Hayward, who has acted as midwife to many management buyouts (MBOs).
He adds: "There are two processes involved in any MBO. There's the formal one that we usually talk about, but there's also the informal, which is just as important in making the deal work smoothly, but often neglected.
"Often the MBO team still has to work with the owner, who has a strong emotional attachment to the business. It's his baby, and he wants to make sure that it passes on into good hands."
While there are endless pieces of advice on issues like creatively financing an MBO, how to handle the due diligence or getting the legals sorted, there is little on the human aspect of what is, in effect, adopting and raising a company.
So this month Insider looks at some true-life confessions from directors who were left holding the baby after going through the labours of bringing an MBO into the world: how they felt; how they were treated; and some tips on how to become the proud owner of a company.
One of the basic emotional elements, often overlooked, is to ensure the MBO team can actually work together.
Says Adrian Cutler, corporate partner at Cobbetts: "It's crucial to be able to trust the team. It needs a range of skills, from the tangible like expertise and business acumen, to soft skills, like being trustworthy and having a positive attitude.
"The team needs complementary skills - some being natural leaders, others doers. It ensures the team gels and that there are no personality conflicts."
Martyn Pilley, corporate finance partner with the Birmingham office of RSM Robson Rhodes, says: "Personal chemistry between management and advisers is crucial because of the close working relationship that develops.
"You need those who are genuinely excited by the proposition and have plenty of experience of dealing with the issues that will inevitably arise."
And of course the MBO's parents must agree among themselves about what they want and what's best for baby.
Says Adrian Chambers, regional managing director of Cattles Invoice Finance in the Midlands: "A common reason for an MBO is to release the business from parental restraints, making it a viable entity with a fantastic opportunity for growth and development.
"It's vital that each member of the team agrees and is comfortable with the business plan, which must be realistic and achievable."
Like first time parents, those planning an MBO often have little idea of the financial facts of life involved in a deal.
They may have heard of the term but they often have little idea of how an MBO is structured, how much the company is worth, or how it is financed.
Indeed less than blissful ignorance about finances often deters many would-be MBO-ers from taking on the role of running the company, because they are unsure how they can afford what seems like a huge price tag.
"Why should they know about MBOs in advance?" says John Farnsworth, corporate finance partner at Smith Cooper in Derby.
"For most managers an MBO is a once in a lifetime experience. Lack of understanding of financing is a big issue. If a company is valued at, say £310m, a lot of would-be owners simply say "I can't afford that'. They don't realise they don't have to find those millions, or put their house on the line, all they need put in is enough to show they are committed, often no more than a year's salary."
Popping the question to the owner about an MBO can be nerve wracking: one manager who went through a successful deal admitted: "I didn't know whether I'd come away from that lunch with the company or with a P45."
However planning an MBO should be like planning a family - best considered when the idea is still a twinkling in the eye of a director, and certainly well before the moment of conception.
Says Colin Burrow, investment director at equity house Bridgepoint: "It's important to understand the processes before they start, even if it's just a chat over coffee about where the company is in its ownership cycle.
"Even if it's two or three years ahead of a possible deal, it's worth having a quiet chat with someone who knows.
"Rather than being offered to management, a lot of companies are put up for auction. It's vital to have some ideas in advance, so that when when the time comes you can position yourself quickly. Otherwise the deal can happen before you're ready and you're disenfranchised."
While ignorance of how an MBO can be structured and financed deters many potential purchasers, others rush into negotiations without realising that a handful of share certificates may not be the job guarantee they thought it was.
Says Karl Jansen of East Midland lawyers Freeth Cartwright: "A lot of managers assume once they've been though an MBO their position is secure.
"But venture capitalists have few problems changing the management if they feel the company isn't hitting target.
"A lot of managers are unaware of their personal exposure through warranties. It's one thing to lose a company, it's even worse to be also saddled with a bill three times your annual salary."
Like any new arrival, an MBO can cause friction within the business family, which is why it's often useful to have someone else to blame when things get fraught.
Jansen concludes: "The relationship between the vendor and the purchaser can often be tense, particularly if they have to work together outside of negotiations. That's why the professionals so often get the blame, as a sort of release valve.
"We are often cast as the bad boys by both sides, but if that's what it takes to get the deal done, that's fine"
So says Roger Buckley, corporate finance partner at BDO Stoy Hayward, who has acted as midwife to many management buyouts (MBOs).
He adds: "There are two processes involved in any MBO. There's the formal one that we usually talk about, but there's also the informal, which is just as important in making the deal work smoothly, but often neglected.
"Often the MBO team still has to work with the owner, who has a strong emotional attachment to the business. It's his baby, and he wants to make sure that it passes on into good hands."
While there are endless pieces of advice on issues like creatively financing an MBO, how to handle the due diligence or getting the legals sorted, there is little on the human aspect of what is, in effect, adopting and raising a company.
So this month Insider looks at some true-life confessions from directors who were left holding the baby after going through the labours of bringing an MBO into the world: how they felt; how they were treated; and some tips on how to become the proud owner of a company.
One of the basic emotional elements, often overlooked, is to ensure the MBO team can actually work together.
Says Adrian Cutler, corporate partner at Cobbetts: "It's crucial to be able to trust the team. It needs a range of skills, from the tangible like expertise and business acumen, to soft skills, like being trustworthy and having a positive attitude.
"The team needs complementary skills - some being natural leaders, others doers. It ensures the team gels and that there are no personality conflicts."
Martyn Pilley, corporate finance partner with the Birmingham office of RSM Robson Rhodes, says: "Personal chemistry between management and advisers is crucial because of the close working relationship that develops.
"You need those who are genuinely excited by the proposition and have plenty of experience of dealing with the issues that will inevitably arise."
And of course the MBO's parents must agree among themselves about what they want and what's best for baby.
Says Adrian Chambers, regional managing director of Cattles Invoice Finance in the Midlands: "A common reason for an MBO is to release the business from parental restraints, making it a viable entity with a fantastic opportunity for growth and development.
"It's vital that each member of the team agrees and is comfortable with the business plan, which must be realistic and achievable."
Like first time parents, those planning an MBO often have little idea of the financial facts of life involved in a deal.
They may have heard of the term but they often have little idea of how an MBO is structured, how much the company is worth, or how it is financed.
Indeed less than blissful ignorance about finances often deters many would-be MBO-ers from taking on the role of running the company, because they are unsure how they can afford what seems like a huge price tag.
"Why should they know about MBOs in advance?" says John Farnsworth, corporate finance partner at Smith Cooper in Derby.
"For most managers an MBO is a once in a lifetime experience. Lack of understanding of financing is a big issue. If a company is valued at, say £310m, a lot of would-be owners simply say "I can't afford that'. They don't realise they don't have to find those millions, or put their house on the line, all they need put in is enough to show they are committed, often no more than a year's salary."
Popping the question to the owner about an MBO can be nerve wracking: one manager who went through a successful deal admitted: "I didn't know whether I'd come away from that lunch with the company or with a P45."
However planning an MBO should be like planning a family - best considered when the idea is still a twinkling in the eye of a director, and certainly well before the moment of conception.
Says Colin Burrow, investment director at equity house Bridgepoint: "It's important to understand the processes before they start, even if it's just a chat over coffee about where the company is in its ownership cycle.
"Even if it's two or three years ahead of a possible deal, it's worth having a quiet chat with someone who knows.
"Rather than being offered to management, a lot of companies are put up for auction. It's vital to have some ideas in advance, so that when when the time comes you can position yourself quickly. Otherwise the deal can happen before you're ready and you're disenfranchised."
While ignorance of how an MBO can be structured and financed deters many potential purchasers, others rush into negotiations without realising that a handful of share certificates may not be the job guarantee they thought it was.
Says Karl Jansen of East Midland lawyers Freeth Cartwright: "A lot of managers assume once they've been though an MBO their position is secure.
"But venture capitalists have few problems changing the management if they feel the company isn't hitting target.
"A lot of managers are unaware of their personal exposure through warranties. It's one thing to lose a company, it's even worse to be also saddled with a bill three times your annual salary."
Like any new arrival, an MBO can cause friction within the business family, which is why it's often useful to have someone else to blame when things get fraught.
Jansen concludes: "The relationship between the vendor and the purchaser can often be tense, particularly if they have to work together outside of negotiations. That's why the professionals so often get the blame, as a sort of release valve.
"We are often cast as the bad boys by both sides, but if that's what it takes to get the deal done, that's fine"