Case Studies
Twice is right for AMS
As many businesses in the corporate and commercial finance industry would probably agree, 2003 was a turning point for the management buy out market, with an overall increase in deal activity witnessed by many, if not all, of Birmingham's major players.
Lloyds TSB Commercial Finance, which has a key regional office in Birmingham city centre, was no exception, completing a total of 36 MBOs last year - an 89 per cent increase compared to 2002. The dramatic rise in the number of MBOs funded by Commercial Finance was an encouraging sign of a market revival and this year alone the company has already enjoyed a greater level of involvement in deals, such has been the demand from businesses looking to orchestrate management buy outs.
Simon Woodcock, senior regional manager at Lloyds TSB Commercial Finance in Birmingham, said: "Management buy outs are often the most viable option as the company is sold to the team that knows the business best. They also ensure continuity to the employees as well as the customers and suppliers.
"MBOs 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.
"During the last couple of years the vast majority of MBOs that we have financed have been fully leveraged deals, or they have included an element of deferred consideration."
One transaction that Commercial Finance has recently been involved with was the secondary buy out of one of the UK's leading suppliers of shopfittings and display equipment, AMS. The £16m turnover company was recently bought out by two of its existing directors, Jim Clark and Ian Parr, in a multi-million pound deal. It is the second time that AMS has been the subject of an MBO after it was originally bought out from its previous owners, the Ham family and venture capitalists 3i, in 2001 by John Sharp, Jim Clark and Neil Burton. This latest acquisition followed the decision by chairman John Sharp to reduce his involvement in the business, while remaining as chairman of the company.
Established 85 years ago, today AMS is one of the biggest employers in Redditch, employing more than 240 people at its base in South Moons Moat. The company also boasts an impressive client portfolio, including Tesco and The Carphone Warehouse, and has recently completed contracts for fitting out the Selfridges and Debenhams stores in the Bullring. As well as shopfittings, AMS supplies the healthcare and education sectors, and is currently developing its presence in the hotel and accommodation furniture market.
"Commercial Finance was originally introduced to the deal three years ago when the management team, led by John Sharp, made the decision to conduct an MBO in order to allow the owners to take more of back seat in the business and to ensure the ownership of the company remained in the hands of the internal management," said Simon.
"For that to happen it was important the management team retained 100 per cent of the equity, rather than give any away. This was done by the majority of the funding being supplied by Commercial Finance, with a small cash injection from the management. This is obviously a positive and beneficial way to start managing a business."
When planning to raise finance there are a number of routes available to businesses, one of which is asset based lending. This form of finance allows companies to borrow money against their available assets, which can include stock, property and/or existing plant and machinery.
This was the preferred choice of the AMS management team, which took advantage of the flexible financing options provided by Commercial Finance to raise a total of £3.5m as part of the funding for the original MBO. In addition to this, Commercial Finance released a further half a million pounds to the company for the completion of the secondary buy out, which, according to Woodcock, are becoming an essential element of the UK buy out market, particularly as an exit vehicle for venture capitalists.
"Increasingly, we are witnessing a growing number of businesses looking to utilise our asset based finance facility, which includes factoring and invoice discounting, for the purpose of raising the necessary capital to fund acquisitions, especially exits and secondary buy outs," he said.
"This transaction illustrates that secondary buy outs are the now the preferred form of exit for venture capitalists, but also demonstrates that VC's have an important part to play in the growth and development of a company.
"In the case of AMS, thanks to its sound business base, it is now in a strong financial position to drive the business forward.
"AMS is a market leader in its field and it now looks set to go from strength to strength with an experienced management team at the helm to steer the company in the right direction."
Lloyds TSB Commercial Finance is part of the Lloyds TSB Group plc.
Lloyds TSB Commercial Finance is part of the Lloyds TSB Group plc.
