Management buy out

Milltown Row2 · April 18, 2013, 09:15:30 AM

Friend of mine is in a company and the owner is looking to sell up and he's looking for the management to buy him out, mates interested but not sure of the costs/procedure. The firm is worth about a million and a half.

Pro's and cons

Bingo · April 18, 2013, 09:27:17 AM

How long is a piece of string?

It could take a week or 6 months from experience.

The obvious starting point is finance and the valuation of the firm. Its worth 1.5 as you say but in who's opinion? The seller or the buyer. The biggest part of all this is normally agreeing the price and what is actually covered in that eg the trading assets, the liabilities, goodwill, order book, customer book, is it the shares of a Ltd company etc etc. Due dilligence would have to be done and then all sorts of legal work.

The first thing he should be doing is getting professional advice, if he needs to finance it, he'll have to have a business plan to take to a bank in addition to putting his own valuation to it.

Shamrock Shore · April 18, 2013, 09:34:59 AM

(i) Initial sourcing of finance from own funds and then bank/other investors. Need at least 20% of 'own skin'
(ii) Due dilligence of the books and records. Identify valueless stock and 'never will pay' debtors.
(iii) Preclude old management from rising 'Phoenix like' to set up new business and nabbing old customers.
(iv) Get warranties in place so that if some problem arises in the future (like a Revenue audit) that picks up something pre-buy out then the old management is liable for costs
(v) Have informal meetings with top customers to make sure once old management is gone that they won't go off elsewhere.

and so on.

southdown · April 18, 2013, 01:08:00 PM

Register an account with duedil.com. Its free to do and you get all the info you could ever want on a Ltd company in the UK/NI. It gives you the book value of each company which is vaguely accurate as to a company's worth.

You get all the info that companies house will make you pay for.

Milltown Row2 · April 18, 2013, 08:30:43 PM

Quote from: southdown on April 18, 2013, 01:08:00 PM
Register an account with duedil.com. Its free to do and you get all the info you could ever want on a Ltd company in the UK/NI. It gives you the book value of each company which is vaguely accurate as to a company's worth.

You get all the info that companies house will make you pay for.

Cheers, interesting site

heganboy · April 18, 2013, 10:55:16 PM

as a heads up - if management is doing a leveraged buy out, i.e. they are borrowing to buy out the owners there is a 10% - 20% premium charged by a lender. So if its going to cost $2M for the buy out then the lender will lend 2M but charge 2.2-2.4M for the transaction and that's before the fees...

Rois · April 19, 2013, 12:17:25 AM

Give me a shout...financial due diligence is my bread and butter - I'll do a liability-free homer for your friend!

southdown · April 19, 2013, 09:31:40 AM

Quote from: Milltown Row2 on April 18, 2013, 08:30:43 PM
Quote from: southdown on April 18, 2013, 01:08:00 PM
Register an account with duedil.com. Its free to do and you get all the info you could ever want on a Ltd company in the UK/NI. It gives you the book value of each company which is vaguely accurate as to a company's worth.

You get all the info that companies house will make you pay for.

Cheers, interesting site

Extremely, especially if your a nosey bugger like me!

highorlow · April 19, 2013, 12:14:58 PM

Call in Nora Casey.