MBO - Management Buy Out - Taking over your own company
(or "spin-off" in the case of a group subsidiary, or "carve-out" in the case of a company's branch of activity)
Who is better placed than a manager or a management team to take over their own company? Whether the company is independent or the subsidiary of a group, this interesting solution is not sufficiently encouraged. Because usually it is not well prepared by the two parties.
An MBO allows a business to continue: you don't change a winning team. The seller has the satisfaction of having destroyed nothing, while the buyers have the opportunity to experience one of the most intense business adventures, supported by their investor.
A pinch of their savings (don't go overboard), sufficient capital added by the investor (to be structured appropriately), and debt (so-called "senior" debt) in a reasonable quantity and only if the company can distribute a dividend with low risk after the operation. And that's all there is to it? If only it were that simple.
OBO – Owner Buy Out - Asset diversification
A shareholder manager whose company has reached a first stage of development may endeavour to secure part of his "industrial" assets. Although an entrepreneur may like risk, in order to stay an entrepreneur it is sometimes advisable to protect your close relatives and receive the first fruits of your work.
But the OBO is not merely an asset transaction. It is also an opportunity to open the company's capital to a business partner, to continue entrepreneurship but differently, with one or more partners.
Concretely, the shareholder manager sells part of his shares to a newly created holding company, and transfers the balance of his shares to said holding company, thereby deferring capital gains tax. He accordingly receives a stake in the capital of this latter company, either a majority or a minority stake at his choice. The financial partner and bank(s) transfer to the holding company the capital corresponding to the part of the shares sold. The senior debt part, contributed by the banks, is repaid over five to seven years out of the dividends paid by the company.
Securing and opening the capital, to take the business further.
Growth Capital - Strengthening the shareholders' funds
A capital increase or a convertible bond issue: the operation can be planned in one or more stages, possibly predefined. In any case the aim is to provide the company with additional resources to accelerate its growth:
- A boost to development that is already regular;
- Aid with diversification of the company's product offering;
- A helping hand to climb a step at a given point in time, etc.
These funds will make it possible to recruit more sales reps, engineers and developers. They can be used either to invest in production facilities, develop new products or a new service, or enter new markets, especially export markets.
Raising funds and opening the capital, to accelerate.
Partial Buyout - Exit of a shareholder
Whether provoked or requested, the exit of a shareholder is always an opportunity for the management in place, and represents:
- Above all the opportunity to establish a new governance better adapted to the company's new challenges;
- The possibility of having a stake acquired by a professional shareholder having resources and whose primary objective is to support the company's expansion by providing it with new funds if necessary;
- The opportunity to increase one's share of the capital, that the incoming investor could contribute to, with or without leverage.
Don't hinder the exit of an outgoing shareholder; it's usually an opportunity…
Build-up - Acquisitions, external growth
The acquisition of one company by another is a complex operation, going beyond the customary framework of the decisions of any manager. It is usually an interesting opportunity to skip stages in development. The ideal external growth operation is one that fulfils at least two purposes: the acquisition of extra business, and the resolution of at least one sticking point in the buyer's organic growth.
So-called "external" growth, via acquisitions, requires thorough reflection, an objective view and great experience of the diversity of specific situations of SMEs. Involved professional investors like us naturally have such experience.
Joining forces with an investor to carry out an external growth operation is therefore recommended, as of the investigation and reflection stage. And raising part of the price via equity capital reduces pressure on the balance sheet and gives increased room for manoeuvre following the acquisition.
MBI – Management Buy In / BIMBO – Buy In Management Buy Out
So many business successions to be organised. So many manager buyers looking for "nuggets".
As soon as the target company is identified, the manager should work beforehand with experienced advisers and/or an investor who is really interested. He himself should stay concentrated on analysis of the business, the project and the business plan, and the relationship with the seller(s).
It is recommended that any outside buyer take an interest in companies having good-quality middle management, who could possibly become partners during the takeover (in this case referred to as a BIMBO) or after the takeover. Or maybe their knowledge of the business and their confidence in the quality of support from the seller enable them to effectively avert the risk entailed in any grafting operation, especially in the case of a business succession.
You have to sell some day... There are those who boast of having made a fortune by always selling “too soon”. Others, sure of their talent, say that you should never sell. In the case of a business, it is more appropriate to speak of succession. As partners of the business, we are attentive to the purpose of the succession operations that we support.
The smaller a business, the more it is dependent on its manager(s). It is therefore better, in its own interest, that it be transferred when its managers either no longer consider it capable of remaining independent in its environment, or consider themselves no longer capable or sufficiently keen to lead it on to the next stage.
Selling is not an end in itself, it is also a beginning, for both the business and the manager.
What proportion of the ocean of liquidity poured out by central banks onto Western economies since 2001 is actually devoted to creating? Most of this mass goes into inflating the value of private assets, and fiscal deficits, i.e. debts of all kinds.
May those who really finance new business formation, significantly and on a long-term basis, raise their hands. Few financiers: risky and time-consuming. Few banks: risky and not very profitable.
We also finance business start-ups.