Corporate Finance monthly newsletter

In this month’s newsletter, we are focusing on Management Buy-Outs (MBOs) and highlighting a case study of a client we have recently assisted.  

Supporting Clients with MBO Plans  

Regardless of your service line, it is essential to understand your clients’ future plans so that you can provide appropriate advice. When discussing this topic, consider connecting clients with the Corporate Finance team to explore strategic planning options. Ideally, we prefer to engage with clients who need strategic planning advice for exiting their business three to five years before the event. This timeline allows us to advise them on maximising the value of their business and to guide them through the exit and succession planning process.  

One option for many owner-managed businesses is an MBO, where senior management acquires a controlling stake in the business. This approach can be appealing for several reasons:  

• There is no need to market the business for sale, which accelerates the transaction.  

• The due diligence process is generally easier.  

• Business continuity is maintained for staff, customers, and suppliers.  

• The legacy of the business is preserved.  

• It provides a great opportunity for senior management. 

Recently, we assisted three clients, Eley Insurance, Kebble Environmental, and Universal Site Supplies, in executing MBOs before changes to the rules regarding Business Asset Disposal Relief took effect. In each case, we did not have the opportunity to plan in detail with the clients well in advance of the transaction, which would have been ideal. Nevertheless, we successfully executed the transactions that the clients desired.  

Each of these transactions was linked to the retirement of a shareholder, with subtle differences in each case that required tailored assistance. For Universal Site Supplies, one of the three shareholders was looking to retire, partly due to differing outlooks for the company’s future among the shareholders.  

Our first step was to conduct a valuation of the company, involving all parties, but our engagement focused on the buy side of the transaction. The buyer and seller negotiated the valuation independently; however, once the headline consideration was settled, we assisted our client in structuring the transaction to suit both parties.  

Funding for the transaction was necessary, and we collaborated with the buyer to determine the best approach, ultimately deciding on an invoice finance facility provided by their bank, NatWest. Since the transaction included deferred consideration, we established a new company to serve as the acquisition vehicle for the buyers. This measure ensured that there were no tax implications for the buyer regarding the share-for-share exchange between the existing company and the new entity.  

Our tax team supported us in obtaining the necessary tax clearance and once we had received it, we assisted the client in appointing a lawyer to draft the Heads of Terms, remaining involved in the financial aspects of the transaction. After the Heads of Terms were signed, the buyer’s lawyers drafted the Share Purchase Agreement (SPA), which we reviewed to ensure it aligned with the deal structure, particularly concerning tax covenants and financial elements.  

With the SPA finalised, we successfully completed the transaction on time, leaving the clients happy and ready to steer the business in their desired direction. We also assisted with some post-deal matters, including calculating and guiding the client in paying the stamp duty, as well as updating the company’s statutory records to reflect the change.  

The other two transactions, Eley Insurance and Kebble Environmental, followed a similar path. Notably, for Kebble, no tax clearance was required since the exiting shareholder was selling all their shares, and no other shareholders were involved in a share-for-share exchange.  

In summary, we should proactively engage clients about their future plans as early as possible, allowing them to explore their options and maximise their business value. MBOs are advantageous exit strategies, and we have extensive experience advising clients on executing them. Please reach out to Stuart Sheldrick or anyone in the Corporate Finance team if there is a particular client you would like to discuss.