A. Jeremy Whitaker writes:
Leverage is unlikely to be a problem if your business is in good shape, as venture capital investors will be fighting for the chance to structure a debt/equity package to support a management buy-out (MBO). They’ll be looking for a strong market sector, business growth over the previous three years and a three-year plan forecasting continued growth.
More of an issue would be the quality of your successors, as it is important to leave a strong and experienced management team in place to work with the new investors. Especially critical to success are the prospective chief financial officer and chief executive, so if there is weakness here you should find and bed-in a stronger new team before you go to the private equity community.
Alternatively, a trade sale would be an option if this is the case, and is also worth looking at if you know immediately of a potential buyer from whom you would gain a much higher multiple – cash out beats legacy every time! Bear in mind, though, that trade buyers often impose onerous warranties. Your first action in any event, should be to talk to an experienced corporate finance adviser with a track record in businesses within your sector and size, and together identify a step-by-step timetable for a vendor-led process.
Personally, I believe there is no need to give up on your hope of a legacy. Many medium-sized businesses are now in the hands of a private equity owner/management mix, with most showing very strong results post-MBO, driving excellent performance and shareholder value. What’s more, you should have no problem finding private equity interest to provide for your retirement, while still being in a position to reward your loyal employees.
Jeremy Whitaker is the chief executive of the DLG Group, the UK’s largest lifestyle data provider of consumer information for businesses.
www.dlg.co.uk