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Venture-backed MBOs/MBIs – Advice from the experts. Part Two

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Part Two – The Market

At the moment due to funding challenges, MBIs are almost impossible. There are still some MBOs getting done and you have a chance to get these away, provided of course you can get funding.

According to Steve Cook of Empire HR there’s plenty money sloshing about for deals £20m to £100 Million, but there’s a challenge at the low end.

Steve’s talk was more about his two experiences of Venture backing: setting up, bringing in a corporate venturer and then selling Empire 1, followed by MBO / MBI of Empire 2.

Steve’s top quote of the evening was “The key thing is ‘just being lucky’.”

He had a number of key tips to share: firstly, to make sure you prepare an exit before you start. “Get all your ducks in a row”, to coin a phrase.

Steve also advised to make sure to cut costs and don’t spend any money in the last year in order to inflate the profit and valuation. Everyone needs to be “on the bus”, ie aligned with the plan and the vision. And all fo the partners must agree the roles and expectations in advance of the process beginning. It’s essential to have a very robust shareholder agreement.

Steve recommended Jim Colin’s book “Good to Great”

If you’re interested in learning more about MBOs/MBIs, take a look at Murray Strachan’s blog

Venture Backed MBOs / MBIs – Advice from the experts Part One

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“They shaft you on the way in, work you hard on the way through, and shaft you on the way out … but that’s the nature of the venture capitalist”

If you’re considering a venture-backed MBO (Management Buy Out) or MBI (Management Buy In) then the advice shared at the January Focus Dinner is essential.

Chaired by Exchange director Murray Strachan, who was involved in an MBO of RGIT Montrose, two speakers shared their wisdom and experience.

First up was Scott Martin of Glacier Energy Services who quoted Murray during his own deal: “They shaft you on the way in, work you hard on the way through, and shaft you on the way out … but that’s the nature of the venture capitalist”.

Scott explained there are essentially three phases to be aware of:

1. Doing the Deal (The way in)
2. Delivering the (MBO / MBI) Business Plan and enhancing value
3. The Exit

When Doing the Deal at the outset you need a number of things in place, namely an inspiring business plan backed by a high quality management team consistently delivering your financial results (relentless delivery is a theme throughout). You need to maintain a maximum number of funding options and funding partners in order to maximise the equity share and deal for the management team. And you should appoint good advisers; don’t scrimp, said Scott, as it’s money well spent.

When you reach phase 2, you have to maintain proactive communications with the VC to make sure there are no surprises, and you need to do what you said you’d do. You need to build a track record of delivery, relentless delivery of results is essential. You also need to delivery the strategic plan as well as the operational plan, which can sometimes be left behind. According to Scott, the quality of your management information and KPIs is critical. And just as critically, you must not breach your bank convenants.

At the final stage, the exit, you must be absolutely clear why you’re doing it. You need to be prepared, make sure your management structure is robust, that your succession planning is complete, and that your data room and due diligence information are all ready.

Scott’s final tips? Look the part. Make sure you have glossy accounts, a good website and brochures, great market and brand positioning. And don’t be greedy – leave something on the table for the buyer / next investor.