The opportunity for an MBO/MBI may arise in a number of ways.
- A group may decide to sell a business because it has become non-core.
- A company may find itself in difficulties and need to sell all or part of the business.
- The owner of a private company wishes to retire.
- A receiver or administrator may sell a business as a going concern.
- A board may elect to leave the public arena (P2P).
- Changes in a management team, or a venture capitalist’s desire to exit, may generate a secondary MBO/MBI.
As explained earlier, the main source of MBOs/MBIs is private owners, who decide to sell for a variety of reasons.
Invariably the most straight forward deal is when a management team is able to buy their company as a going concern from the owner, who in many cases may have been their day-to-day boss. If you are working in such a company it is always worth exploring the potential of buying the business. With colleagues you will have a very good understanding of the owner’s agenda, and also, of course, of the business potential and what makes it tick.
No two owners are the same of course, but their options for realising capital from their business are limited to a few tried and tested routes. Selling to their management team has a number of practical advantages:
- a proven business model exists which provides new funders with comfort;
- less disruption to the business;
- tax planning for the vendor; and
- a lower risk transaction.
MBI teams hunting a deal also know this to be the most fertile territory and scan extensively for opportunities through their networks.
BIMBOs are common in the private company arena, and are frequently the case when a management team is missing an important member (e.g. a finance director). If you have the opportunity to buy the company in which you are presently working, it is relatively easy to find and attract a new team member – especially with the promise of sweet equity. The advisory community is always happy to introduce candidates to you – especially if this increases the probability of a deal being done. Maybridge was a BIMBO and its story is covered in a later chapter.
These are still as effective as ever at providing information and identifying opportunities. A combination of phone calls and meetings with employees, advisors, suppliers and customers provide a valuable insight.
Trade associations, publications and exhibitions
These are another invaluable source. A combination of desk research and attending industry events can be very informative. Invariably there will be a number of industry-specific websites available.
There are many sources which cover public and private companies:
- Financial websites: for example Motley Fool, FT and MoneyAM.
- companies’ own websites
- Companies House: this provides access to a company’s financial history as well as information on directors, shareholders and financial performance; and
- search engines: Google, Yahoo and others are extremely effective as research tools. Perhaps too much so – sometimes it is like trying to fill a cup from the Niagara Falls!
In certain companies advertising and promotions are vital ingredients to the business, and there are many sources of information available which can build a picture.
A company’s record in advertising (level of expenditure and consistency of creative executions) is always revealing. Good brands tend to be consistently supported with strong creative executions and campaigns. Weaker, struggling brands leave tell-tale signs of erratic investment with meandering creative executions.