Running a business better than your boss

Management buyouts and buyins have pitfalls as well as bonuses, says Roger Trapp

It is a rare employee who does not think he or she can run their company better than the existing management. However, even those fairly high up in the organisation rarely get the opportunity. This is generally because the enterprise is not for sale. But even if it is, a lack of finance can put a brake on such ambitions.

This is where leveraged buyouts come in. Basically acquisitions largely financed by borrowing that is supposed to be paid out of future cash flows, they are increasingly being used to put management in control. According to figures from the Centre for Management Buyouts Research, management buyouts and buying activity has increased dramatically over the past 15 years. Last year 537 such deals, worth pounds 3.4bn, were concluded.

As the accountants Coopers & Lybrand point out in a recently published guide on the subject, many managers have already become wealthy by buying the business they used to manage, or buying another business and improving performance. However, not everybody who goes down this road emerges happy and rich.

The guide is designed to increase the proportion who do. In particular, the firm stresses that management buyins (MBIs) - where a team of managers is supported by financial institutions to acquire a business it reckons can be improved through its management expertise - are essentially a different proposition from management buyouts (MBOs), where the existing managers acquire the business from its owners.

It says MBIs are traditionally riskier than MBOs for a variety of reasons:

nAn MBI team does not have the "inside knowledge" of the company that an MBO team does, with the result that the plans might go wrong.

nSellers of MBI targets are often less inclined to do a deal than they would if an MBO team was involved. This reduces the chances of the MBI team obtaining the business on favourable terms.

An MBI might require greater preparatory work in identifying a suitable business to buy and putting together the finance and the team, which also diminishes the chances of a successful deal.

However, this does not mean a deal can be done. MBOs and MBIs take place in every type of industry and they come in all sizes. Success is largely down to the quality of the management and its ability to work together, says Coopers & Lybrand. But suitable targets tend to fit one of the following categories: non-core businesses, profitable or potentially profitable subsidiaries of a cash-starved group, businesses that do not generate sufficient returns on capital employed, and family-owned businesses with succession problems.

The next stage, of course, is obtaining the finance, and here Coopers & Lybrand plays its card. In line with other large accounting firms, it has made great strides in corporate finance recently - picking up deals that the merchant banks have traditionally shunned as not being big enough to be worth their while.

In the past three years, it claims to have acted in more than 30 per cent of all British management buyouts and buyins by value. It has been lead adviser in 130 of the deals in which it has acted. But despite this prominent role, it does not have direct access to funds: it merely advises businesses on where to obtain the money.

And here begin a whole new series of hurdles, including persuading would- be investors that the business plan is sound, and satisfying their due diligence investigations. And that is before you even sit around the table to hammer out a deal.

Still interested? Contact Coopers & Lybrand, or indeed any other large accounting firm, in London or at one of the regional offices.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

    £16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

    SThree: Experienced Recruitment Consultant

    £20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

    Recruitment Genius: Collections Agent

    £14000 - £16000 per annum: Recruitment Genius: This company was established in...

    Day In a Page

    The long walk west: they fled war in Syria, only to get held up in Hungary – now hundreds of refugees have set off on foot for Austria

    They fled war in Syria...

    ...only to get stuck and sidetracked in Hungary
    From The Prisoner to Mad Men, elaborate title sequences are one of the keys to a great TV series

    Title sequences: From The Prisoner to Mad Men

    Elaborate title sequences are one of the keys to a great TV series. But why does the art form have such a chequered history?
    Giorgio Armani Beauty's fabric-inspired foundations: Get back to basics this autumn

    Giorgio Armani Beauty's foundations

    Sumptuous fabrics meet luscious cosmetics for this elegant look
    From stowaways to Operation Stack: Life in a transcontinental lorry cab

    Life from the inside of a trucker's cab

    From stowaways to Operation Stack, it's a challenging time to be a trucker heading to and from the Continent
    Kelis interview: The songwriter and sauce-maker on cooking for Pharrell and crying over potatoes

    Kelis interview

    The singer and sauce-maker on cooking for Pharrell
    Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

    Cameron lowered the flag for the dead king of Saudi Arabia...

    But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

    Humanity must be at the heart of politics, says Jeremy Corbyn
    Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

    Joe Biden's 'tease tour'

    Could the US Vice-President be testing the water for a presidential run?
    Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

    Britain's 24-hour culture

    With the 'leisured society' a distant dream we're working longer and less regular hours than ever
    Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

    The addictive nature of Diplomacy

    Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
    Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

    Fashion: Ooh, Lady Chatterley!

    Take inspiration from DH Lawrence's racy tome with equally racy underwear
    8 best children's clocks

    Tick-tock: 8 best children's clocks

    Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
    Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

    Charlie Austin: ‘If the move is not right, I’m not going’

    After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
    Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

    How Isis profits from destruction of antiquities

    Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
    Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

    'If we lose touch we’ll end up with two decades of the Tories'

    In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea