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MANAGEMENT BUY OUTS - A VIABLE OPTION
Management buy outs are becoming an increasingly viable option as a means of turning the fortunes of a business round. However, without the correct funding, the deal may never get off the ground, says Lloyds TSB Commercial Finance. There are many routes to financing an MBO, but an increasingly popular one is asset based lending, which often possesses the ability to release more available funding into the business than traditional facilities, such as overdrafts and loans. A vast amount of the transactions that Commercial Finance completes are management buy outs (MBO's). In 2003, the company completed a total of 32 MBOs, which represents a 68% increase compared to the previous year.
Jon Adams, Lloyds TSB Commercial Finance regional director, Birmingham, said: "A management buy out is often a viable option as the company is sold to the team that knows the business best. MBOs also ensure continuity to the employees as well as the customers and suppliers. "They can also be the perfect way to inject fresh ideas and enthusiasm into a business and often management teams are surprised by what can be achieved in terms of structuring these transactions without the need for much, if any, outside equity funding. " In the past, there has been a degree of negativity towards a change of ownership in a business, but today it is seen as a positive way forward. "Over the last couple of years the vast majority of MBOs that Commercial Finance has financed have been fully leveraged deals or they have included an element of deferred consideration," says Adams. "There has often been no outside equity provided other than maybe a small injection from the management team. The transaction has been solely funded by us, allowing the management teams to keep 100 per cent of the equity rather than give any away. This is obviously a positive and beneficial way to start managing a business. "
This was the case for successful commercial printing business Five Castles Press. Based in Ipswich, the company was bought out for an undisclosed sum following a management buy-in/buy-out by a consortium of businessmen, with help from Commercial Finance. The small family-owned business, which was founded in 1986, specialises in full colour commercial printing of brochures, catalogues and leaflets for a wide range of clients, including advertising agencies and independent businesses. Today, under the leadership of the new management team - Andy Booth, financial director, Robert Burnett, managing director, and John Cocker, sales director - Five Castles Press Ltd has appointed six new members of staff and now employs more than 20 people, with an annual turnover of 2.2million.
The opportunity to acquire the business came about when the previous managing director and founder Mike Castle decided to retire and sell his majority share in the company. Robert Burnett said: "When the opportunity presented itself to us to acquire the business, we grabbed it with both hands. "Five Castles Press is an established company and has a strong reputation as one of the leading print businesses in the region. For that reason we decided that a buy out was the right move to make. "The prospect of owning your own company is a daunting one, but we were confident that the business would be a success, and so far we haven't been wrong. "Thanks to Lloyds TSB Commercial Finance we are now in a strong financial position to start investing more money. We have already installed a state-of-the-art computer-to-plate system and we currently looking to invest in a third five-colour printing press. " In total, Commercial Finance provided a financial package worth £400,000 through its flexible asset based lending service.
Jon Adams added: "If I could offer one piece of advice to those curious about MBOs it would be to make sure you are comfortable with your commercial finance partner and their ability to deliver. "Lloyds TSB Commercial Finance can offer financial support to businesses of all sizes, from start ups to major global plcs. We treat every deal individually, as each business is different, and we are far more interested in the future of a company than its historic track record. Nothing pleases us more than seeing our clients reach their full potential. "
Lloyds TSB Commercial Finance is part of the Lloyds TSB Group plc.
