RESEARCH commissioned by Coutts reveals that the number of business owners prepared to consider a Management buy-out (MBO) has tripled in the last three years, as entrepreneurs have had to consider all options in a difficult economic market.
The report, A Special Kind of Exit, explores the attitudes and perceptions to MBO amongst UK entrepreneurs, and finds that most entrepreneurs will only instinctively sell their business to their own management team as a last resort, although those that have been through a management buyout say it is the best way to exit a business.
The Coutts report also found that:
Less than one in five (19%) entrepreneurs would consider an MBO and one in four (27%) would only consider it as a last resort.
Around a third (30%) of entrepreneurs who had completed an MBO said it represented the best form of exit.
More than four out of five (85%) entrepreneurs and vendors who completed an MBO were satisfied with the deal.
Owner managers prepared to consider an MBO had risen from 6% in 2008 to 18% in 2011.
Over half (55%) of entrepreneurs who sold a business through an MBO said it offered the best deal or was the only way they could exit their business.
Reasons why business owners are reluctant to consider an MBO include concerns around the ability to maximise the price for the business and also the perceived risks attached to entering into discussions with people they have worked with and know well.
The report covers topics including how entrepreneurs can start the conversation with their management team and broach the potential for a deal, as well as the importance of planning. It also advises on how to assess whether a deal is viable and how to seal the deal and prevent it from going wrong.
The Coutts report also revealed the expectations of entrepreneurs to ensure a successful outcome. These included:
Over half (55%) of those who had been through an MBO expected management to have finances in place before discussions began.
Over half (54%) believed they should initiate discussions on a potential MBO with their management team.
70% saw an early discussion with management as a critical success factor in an MBO.
Four in five (80%) cited any attempt by managers to reduce the price as a key deal breaker.
Meeting deadlines was also critical; with two in five (44%) saying slippage in the timetable would be detrimental to the deal.
David Simpson, Senior Client Partner at Coutts in Newcastle said: “Our report provides a critical resource for entrepreneurs who are planning to exit their business. It highlights how to ensure an MBO is a success by sharing advice from those that have been through the process. There is a very high percentage of 'MBO-sceptics', but by ruling out a sale to their management team they are closing down a potentially attractive route of exit, which accounts for 20% of business sales in the UK.”
The full report can be viewed at: www.coutts.com/files/pdf/management_buy_out_report.pdf